AMENDMENT OF THE LAW

HC Deb 28 November 1995 vol 267 cc1074-142

Motion made, and Question proposed, That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

1. (a) for zero-rating or exempting any supply, acquisition or importation otherwise than by—
1. (i) zero-rating or exempting supplies of goods which are, or are to be, subjected to a fiscal or other warehousing regime; or
2. (ii) zero-rating or exempting supplies of services on or in relation to such goods;
2. (b) for refunding any amount of tax otherwise than to persons constructing or converting buildings in cases where the construction or conversion is not in the course of furtherance of a business;
3. (c) for varying any rate at which that tax is at any time chargeable; or
4. (d) for relief other than relief applying to goods of whatever description or services of whatever description.— [Mr. Kenneth Clarke.]

4.41 pm

Mr. Tony Blair (Sedgefield)

I suspect that what we have just seen is the shortest lasting cheer on the Conservative Benches in all the Budgets that we have witnessed. If this Budget is supposed to relaunch the Conservative party, it will fail. It will be known as the "7p up, 1p down Budget". After all, the people of Britain are not novices dealing with the Tories; they are battle-hardened today. Their innocence has given way to experience, their faith to mistrust.

They have learnt two hard lessons from these masters of political deception. First, with 16 years' experience, they know above all else that what they are given with one hand is taken away with the other. One hand may hold open the public purse, but the other is usually in the citizen's pocket.

The Tories say that income taxes have been cut over the years. But then came the other taxes, charges, costs and fees: dentists; prescriptions; rail, bus and tube fares; school books; repairs to school buildings; rent rises; water bills; and insurance premiums. [Interruption.] Tory Members do not like being reminded of those, but that is Conservative government.

The second lesson is that, in the end, what matters is the real strength of the economy. Behind the year-to-year decisions on tax, especially those made before an election, stand the big questions that dwarf the rest into insignificance. People have learnt something about that, too, after 16 years. They know that, for 16 years, Conservative Chancellors have stood at the Dispatch Box telling us that we were about to have an economic miracle, that we were about to overtake all the other nations of the world, that this time it would be different, and we should trust them again.

People also know that, after 16 years, their living standards have fallen compared with other countries, from 13th to 18th place in the national prosperity league. They know that, despite the tax changes, these Tories who call themselves tax cutters take a higher proportion of national income in tax from ordinary families today than they did 16 years ago. They also know that, during those 16 years, these people had the benefit, as no other Government had, of £120 billion-worth of North sea oil. That has gone, and £18 billion-worth of the nation's assets have been sold. They have gone, and the money has been spent.

People know that, whatever promises were made before the last election—those promises are identical to those made today—we ended up with the largest peacetime tax rise in British history, to cover the largest borrowing ever in British history. They know that, even with today's tax cut, the public sector borrowing requirement will be £29 billion—£6 billion up on what the Tories forecast last year. Is it not right that, for next year, it will be £22.5 billion—£10 billion up on what they forecast last year?

Of course we welcome certain aspects of the Budget, such as those relating to long-term care. However, we shall study the details of that proposal carefully, because I suspect that a large number of families will be left out of it altogether. We shall return to that issue in the debate. We also welcome the landfill green tax, help for employers on national insurance, and employee share ownership.

Taken as a whole, however, this is not a Budget for Britain's long-term future. It gives with one hand what it takes with the other in a host of costs and charges. It ignores completely the fundamental weaknesses of the economy. It does nothing about the unemployment, social division and social decay in Britain today. As I shall show, it does not deal with, but rather avoids, the key issues on welfare. On tax, it gives people back 1p on the standard rate, but after taking 7p.

People have had enough punishment. We know that, and will now oppose it. But they will remember "7p up and 1p down". The Budget gives back only a fraction

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

rose—

Mr. Blair

Frankly, no one is less qualified to lecture us on tax than the Liberal Democrats.

This Budget gives back only a fraction of what has been taken away. As a result of the tax rises since the last election, people will remain £700 a year worse off after this Budget. That is a fact, and the Tories cannot deny it. They won power promising to cut tax year on year. They swore blind that they would never raise it, and they have.

Mortgage tax relief has been cut; national insurance contributions are up; the married man's allowance has been cut; new taxes have been imposed on insurance policies, households and holidays; and VAT has been imposed on fuel and power. [Interruption.] Tory Members want us to forget about this. They do not want us to remind people of it. I shall tell the hon. Member for Northampton, North (Mr. Marlow) that we shall remind people of it from now until polling day.

It is not merely that people will have lost all that money. More people pay the top rate of tax now than ever before, and at lower levels of income. Tax today starts at a lower level than it did in 1992. Many people on the bottom rate face marginal tax rates of 70, 80 or 90 per cent. Here we have our old Tory friend—give with one hand and take with the other. Rail fares have risen by more than the rate of inflation, other taxes have risen, and council tax has risen. If the figures are right, those charges may be up to twice the rate of inflation—possibly up to 11 per cent. To give with one hand and take with the other is Tory tax policy.

Whereas the Government could have introduced the fairest tax cut of all—VAT on fuel and power—they did not, despite having promised at the last election that they would never raise it.

Surely the most fundamental point is that, in the end, tax and spending depend upon economic strength. The real reason why taxes have gone up, living standards have fallen and we have slipped down the prosperity league from 13th to 18th is the deep-rooted nature of our economic problems. The Budget, after we have taken account of some of the bits and pieces here and there, does nothing for investment and skills. [HON. MEMBERS: "Rubbish."] We will decide on the evidence produced in the debates this week, but I think I am right in saying that the budget for skills and training is to be cut. The very thing necessary for our long-term economic strength is to be cut.

As for the Chancellor's glowing record of our economic prospects, let us analyse from his own Red Book the figures that he has given. He has said that the growth rates are all booming, but, in actual fact, I think I am right to say that he has had to revise downwards the growth rate for this year. He has said that investment is booming, but, according to the figures released today, investment is set to rise by 1 per cent.

The actual forecast on imports is that they will rise. The right hon. and learned Gentleman has said that we have a trade surplus with the Asian tigers, but we have a trade deficit with members of the European Union, who are our main partners. All that despite a 25 per cent. devaluation of our currency under the Conservatives. Surely that is the serious point. With the currency devalued and the pound worth 25 per cent. less than it was a couple of years ago, one would expect that we would be able to be in trade surplus, but even now we are unable to achieve that. The problems remain.

The right hon. and learned Gentleman spoke about the Asian tiger countries. Let us remind him of one fact. The real lesson to be learned from them is their levels of investment, because it is that investment which makes the difference to a country's strength in the future. In some cases, they have levels of investment approaching 40 per cent.—Japan invests more than 30 per cent.—but the United Kingdom invests below 18 per cent. If we are still 35th in the education league, no wonder we have problems with our economy for the future.

The Chancellor omitted to tell people one or two things as he was going through the Budget. Let me draw attention to some of them. As I understand it, the community programme, which is designed for the long-term unemployed, is to be phased out this year. There it is :40,000 places for those in most need are to be phased out.

One very big spending rise has been forecast in the Budget—the amount of money to go to the common agricultural policy is set to rise to more than £3 billion for the first time. [Interruption.] I do not know whether that worries the Chancellor's colleagues more than my colleagues. In any event, it is a curious thing to be cutting our own skills budget and raising that money for the CAP.

When people examine the Budget, they will start to ask what are the Government's priorities. The Chancellor told us about the increase in health spending, but if we look at the figures, as we have just done, we see that those figures forecast that almost 17 per cent. is to be cut from the capital budget of the health service programme. The health service programme is to be cut by 17 per cent. [HON. MEMBERS: "What about the PFI?"] Do not worry: I can assure Conservative Members that I will deal with the PFI in a minute.

That 17 per cent. cut in the health programme could have been saved by removing tax relief on private medical insurance. That would almost make up the shortfall in full. The failure to do that reveals the difference in priorities.

The Chancellor has said that all the cuts in capital investment will be made up through the PFI, which was relaunched yet again today. It has been relaunched almost as many times as the Prime Minister, and often as successfully. It is the case that the Government assume that the PFI will provide the answer. Last year, the Government said that there would be £5 billion-worth of new projects. I think I am right in saying that just £500 million has been spent. Now the Government say with a great flourish that, in the next few years, £14 billion of PFI money will be available.

All the difficult questions relating to public spending and capital investment are suddenly to vanish, and all will be switched to the PFI. This is not a Budget—it is a wish list. The Government have no grounds for thinking that that will happen. That will take place long into the future—long after the Conservatives have gone, of course. We are entitled to judge the Government by results.

The PFI is right in principle. We have supported it, and in many ways we have been advocating it.

Mr. John Prescott (Kingston upon Hull, East)

We initiated it.

Mr. Blair

It should not be manipulated to cook the books of public finance.

Some of the capital spending that is all to be transferred to the PFI will not be replaced—there can be no guarantee of that. The PFI is a concept about financing, it is not a commitment to finance projects.

If the Government want to do something for the housing and construction industries, they could take up our proposals and phase the release of the capital receipts in local authority accounts to get some houses built for the people.

The PFI may save a capital sum this year if that capital money is removed from the Government's account, but in future years the taxpayer will face a recurring liability. That is why it is a classic example of giving with one hand and taking with the other. [HON. MEMBERS: "That is not true."] Hon Members may deny it, but that is precisely what will happen.

The Government envisage that, instead of the public sector financing the construction of a hospital or a prison, the private sector will build it. It will then lease it back to the public sector, but, at the end of that period, recurring charges will he levied on the project. The same could be said about the married quarters held by the Ministry of Defence. The transfer of those assets gives the Government the appearance of having taken tough decisions, but a cost and liability will fall on the public sector in future years.

We will not support anything in the national health service that is a back-door route to privatising clinical services. If the Government want to get health spending down, they should reduce the bureaucracy that they have created in the NHS.

Welfare bills are the true bills that have risen. There has been remarkably little change in the overall level of spending, but there has been a remarkable change in the composition of it. We now spend about as much on housing benefit as we once spent on housing investment. One in three families are dependent on welfare; one in five non-pensioner households have no working member; and young people, who will often be roaming the streets with nothing to do but crime and mischief, have never worked—some at the age of 25. If we are to deal with those issues, we need to take firm action.

The Chancellor has opposed a windfall levy on the privatised utilities for one simple reason—they are the vested interests of the Tory party, and the Government dare not challenge them. Excess profits have been made. A few days ago, the National Grid was sold. It was worth £5 billion, but it was sold for £1 billion. Half the water companies pay no mainstream corporation tax. The electricity companies have made record profits, even at the height of the recession.

The case for taking on those vested interests and funding a decent education and employment programme for our young people was overwhelming, and it should have been adopted. If that had been done, we could have made a real attack on the root causes of higher welfare bills under the Conservative Government—higher unemployment, higher social decay and higher social breakdown. Many of those young people who have been in that situation for years looked for something from the Budget, and got nothing.

Mr. Tony Marlow (Northampton, North)

Will the right hon. Gentleman give way?

Mr. Blair

indicated dissent.

Mr. Deputy Speaker

Order. It is quite clear that the Leader of the Opposition is not giving way. While I am on my feet, may I say that I would be grateful if the hon. Member for Gravesham (Mr. Arnold) would desist from making sedentary interventions.

Mr. Blair

There were three aims that the Budget had to fulfil. If it was to succeed and to be anything more than a makeshift in the days of a dying and decaying Government, it had to tackle those fundamental problems of the British economy. It had to raise investment and skills, and it had to tackle the problems of social division and the lack of social cohesion that have so harmed this country over the past 16 years. Nothing of that sort was proposed.

The only anxiety ever betrayed by Conservative Members was when the Chancellor spoke about taxes. That was the only time they showed any interest, and the only time even a flicker of concern for anything more than themselves came across their faces—except, of course, that that concern was not for anything more than themselves, because it was their own skins they were interested in.

What was extraordinary about the Budget speech was that it gave no sense of a great strategic vision for the country's future. There was nothing—no all-encompassing horizon of achievement for this nation. The Government have given up trying to steer the ship of state, and are simply looking for the nearest lifeboat to climb into. Government Members have truly had enough of power; they cannot exercise it in the public interest any more—people know that.

If the Government think that, when the British people listen to the Budget, they will be inspired to re-elect them, I can only assume that the Government have been out of touch for so long that they do not know what to do to get back in touch. They would not know the British national interest if it got up and slapped them in the face. Indeed, it does that frequently, and the Government still do not know it. They have given up on any serious vision for this country's future. The Government wanted to hail the Budget as a turning point, but the British people know better. It is another milestone on the Government's road to defeat—and the sooner, the better.

5.2 pm

Mr. Paddy Ashdown (Yeovil)

Unless my judgment is wrong—and it is shared by all my right hon. and hon. Friends—one of the curious aspects of the Chancellor's Budget was that it received more welcome for some of its smaller measures from the Opposition than it did, overall, from Conservative Members. That is a measure of the Budget overall.

Even what the Chancellor did in terms of cutting some taxes was done—as he well knows—at the risk of gambling irresponsibly in the long term with the country's economy. The tax cuts that he gave—particularly the basic cut in income tax—were done by a simple sleight of hand. He achieved those cuts by extending the borrowing, which he knows is sensible and right for this country, over the long term. I shall return to that subject.

It should have been a Budget to save our schools but, instead, it was designed to save seats for the Conservative party. We have heard the last shot in the Tory party's locker. That is it—there is nothing more. The Government's message in the Budget was simple and brutally clear: "Please can we buy your vote for a 1p cut in income tax'? We have nothing further to offer you, but we believe that that will be enough to fool you into voting for us again."

In deciding how to respond to that offer from the Government, the people of this country might do well to remind themselves of an old Russian proverb which is clearly borne out in this Budget: free cheese comes only in mousetraps. The Chancellor of the Exchequer has just made that offer to the country.

The Government seem to think that they can fool the people of this country once again, just as they have done in the past. They think that we are fools and will not notice that they said last year that the economy was so bad that they would have to make record tax rises, but, although it is even worse this year, we can now have tax cuts. They think that we are fools, and will not remember that they pulled that trick last time.

The Government produce tax cuts to buy votes before the election; after the election there will be job losses, home repossessions, higher mortgages and broken businesses, as the British people have to pay for the tax promise. The Government think that we are fools, and will not notice that the lower taxes that we are given today are but a fraction of the higher taxes that they have taken off us in the past two years.

The British people will not be conned by the Budget. It is a Budget not for Britain's future, but for the Conservative party's survival, and it will not work. It is not a Budget for securing the country's long-term future, but for saving Conservatives' skin. We know that from no better source than the Chancellor himself, who in this House last July said: borrowing is actually taxation deferred."—[Official Report, 12 July 1995; Vol. 263, c. 979.]

Mr. Kenneth Clarke

indicated assent.

Mr. Ashdown

The Chancellor was right, and I see that he assents to that proposition now. But last year, borrowing was only £1 billion above the Government's target; this year, it is £9 billion above the Government's target, according to the Chancellor's estimates. Those estimates have always been wrong in the past, and I bet that the figure will actually be higher in the outturn. If, according to the Chancellor, borrowing is taxation deferred, the Budget is taxation deferred until after the next election.

The Budget combines cynicism with irresponsibility. The Tory party has shown itself to be the party not only of devaluation and high borrowing, but of economic irresponsibility. The Chancellor's figures show that the economy is now growing at half the rate that it was last year. Inflation is growing outside the targets. Borrowing has long ago bust the Government's set targets. It is worse: the Chancellor has extended the borrowing targets for next year and the year after, in order to have money for tax cuts this year. The Chancellor's proposition to the country is to live now and pay later.

Last year, the Chancellor said that the PSBR for next year would be £13 billion. In fact, it is going to be £22.5 billion. Last year, the Government predicted that the PSBR for 1997–98 would be £5 billion. The Chancellor's figures show that it will be £15 billion. But, despite that, the Chancellor of the Exchequer is prepared to gamble his own reputation and the sound management of the nation's finances simply to purchase Tory votes at the ballot box.

For what? The Government have nothing further to offer the country, and nothing further to say to the people of this country. They have exhausted their ideas and energy, and they long ago exhausted the patience and trust of the people of Britain. If they gained power again, they would not have a clue what to use it for, except for themselves.

The Chancellor knows perfectly well the Budget that he should have introduced today; he knows what he should have said. He should have introduced a Budget for education and for the country's long-term future. He would have done himself and his party much more good if he had the courage to introduce such a Budget.

The Budget should have said to Britain: "We want lower taxes, and we want you to have them, but lower taxes must be earned, and Britain has not yet earned them." The Budget should also have said, "This year, low interest rates and investment in our future are more important than low taxes. Therefore, this year we shall invest in people's skills for long-term economic success, and we shall cut borrowing and interest rates to sustain recovery and create more jobs."

Above all, this should have been a Budget for education; but it was not. Last year's Budget led to cuts in schools amounting to more than £700 million—£50 less in education expenditure for every primary school pupil, and £200 less for every secondary school pupil. As a result, 5,000 teachers were sacked, there was a one-third increase in classes of over 40 pupils, and thousands of schools used up their last precious reserves. One in eight of our further education colleges is now severely in debt, and the long-term survival of many may be threatened.

The figures will show that this year the Government have not even restored last year's cuts. Of the £870 million, £500 million will go on inflation alone. Another £120 million will go on doubling the assisted places scheme, and another £100 million on the Government's misguided and misplaced voucher schemes. The money is gone—and that does not even account for how it will be generated. Will it be the Government's money, or local authorities' money? I predict that this Budget will do nothing to improve the dangerous, devastating condition of schools and education.

It is, above all, our children who will pay the price of the tax cuts. It is their future that will suffer, so that the Tories can dangle a tax bribe before an electorate whom they believe to be stupid and gullible.

It was with some sadness that I heard the comments of the leader of the Labour party, who said that the Liberal Democrats could not be trusted in taxation matters. Year after year—and this year—we have produced an alternative Budget: we have said how we would pay for what we wanted to be done. Labour has never done that.

This year, Labour Members have been full of comments, attacks and criticism, but they have not said what they would do. They have come up with no alternative Queen's Speech, and no alternative Budget. That is not the way in which to win the trust of the people. It is easy to criticise the Government, but the time for "oppositionism" has passed; the Opposition should be saying what they stand for.

Moreover, it appears from what the leader of the Labour party told us today—although he dealt with this item rather quickly—that Labour will abstain in the vote on the 1p cut in income tax. Is that the best that Labour can do? Why will its members abstain? Over the weekend, the leader of the Labour party said that the Budget must pass four tests: honesty, sustainability, employment opportunities and fairness. As his own speech demonstrated, it did not pass one of those tests. What is the right hon. Gentleman waiting for?

How can the Labour party claim to be strong enough to look to the country's long-term interest if it cannot find the strength to vote against a tax cut that is designed for the short-term interests of the Conservative party? How can Labour Members say that they would put education first if they were in government, when they are not prepared to do so in opposition? If Labour will not vote against a tax cut that puts the Tory party before the country, why should we not conclude that it would put the Labour party before the country if it were in government?

I have a good deal of personal admiration for the Leader of the Opposition, and a great respect for the things that he has done. He is not in his place at present, but let me tell him that, if his party joins the Tories in this crazy competition, this auction of fantasy tax promises—"anything you can tax, I can tax lower"—the people who will suffer most are the poor, the deprived and the dispossessed, and the thing that will suffer most is the cause of progressive politics. We have seen the depth of the Government's cynicism today, and the depth of their irresponsibility; but the way in which Labour will vote will tell us about the depth of its timidity in the face of a general election that is only a year away.

In 1988, my party voted against tax cuts introduced by the then Mr. Lawson. My right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith), who was then our Treasury spokesman, was alone in warning that those tax cuts were irresponsible, that they would damage the country's finances, and that they would have to be paid for by ordinary people in the end. He warned that the Budget was "unfair and unsound". That was not a popular or an easy position to take, but it was the right position.

Of course there are aspects of the Budget that we can support on the margin. We welcome the encouragement of thrift and savings, employee share ownership, the package for small businesses and enterprise and the Government's indexation—even over-indexation—to assist some of the poorer people in the country. Overall, however, this is a Budget that sacrifices good, sound economic management of the country's finances—and, above all, sacrifices the education of our children—for a 1p cut in the basic rate of income tax.

The Government think that people want lower taxes, rather than lower interest rates and more jobs. I think that they are wrong. They think that people want more money in their back pockets today, rather than sound management of the economy in the long term. I think that they are wrong. They think that the British people would prefer a tax cut to investment in our children and our country's future. I think that they are wrong. That is why we shall vote against this irresponsible Budget, and propose in its place a responsible Budget for education and for the country's long-term future.

5.15 pm

Sir David Knox (Staffordshire, Moorlands)

I congratulate my right hon. and learned Friend the Chancellor on his third Budget speech. It was well delivered, as were his earlier two Budget speeches, and it was commendably brief, particularly in view of the ground that must be covered in a unified Budget. I remember past speeches on Budgets that were not unified lasting for two hours or more.

My right hon. and learned Friend produced an interesting Budget, which also contained some surprises. There were no surprises in the speech of the Leader of the Opposition, however: we were told last weekend what he would say, before he had even seen the Budget. The right hon. Gentleman clearly did not wish to be confused by the facts. His speech was littered with the usual meaningless soundbites, which he mistakes for substance and which are becoming a trifle boring.

Let me make just one point about the right hon. Gentleman's speech. He said that the cost of the common agricultural policy would go up to £3 billion. That is not true; it is total agricultural expenditure that will go up to about that amount. There is rather more than CAP expenditure in the total agriculture expenditure bill.

The leader of the Liberal party did not even include any soundbites in his speech, but I found it extraordinary that he should suggest that the poor had been hurt by the Government. Let us consider, for instance, the increase in spending on the national health service since 1979—an increase of 80 per cent. in real terms. The proportion of the national income that is devoted to the NHS has increased from just under 5 per cent. to just over 6 per cent.

The right hon. Gentleman made much of education, but today we are spending 50 per cent. more per school pupil than was spent 16 years ago. That is a pretty fast rate of increase—and, if the right hon. Gentleman wishes to be realistic, he should bear in mind the fact that it is not a rate of increase that can be continued indefinitely.

In the preparation of any Budget, it is extremely difficult to get the various decisions right. The macro-economic decisions are particularly difficult, because they cannot be made on the basis of the current economic situation. Any Chancellor must try to anticipate the position in 18 months to two years, because there is a time lag between the taking of any action and that action becoming effective. My right hon. and learned Friend therefore had an extremely difficult task in that respect. Then, of course, he must weigh the desirability of public expenditure against the reduction of taxation. He must decide not only the total public spending level but its priorities.

In the past few months, my right hon. and learned Friend has been subject to widely varying advice, which has ranged from suggestions that 5p should be taken off the standard rate of income tax and that public expenditure should be slashed to suggestions that he should retain present tax rates and increase public expenditure. He has got the balance about right today. He has increased spending on health, education and the police in real terms—we will spend more on those sectors next year. At the same time, he has increased tax allowances generously and reduced the standard rate by a modest but real amount. Of course, he will not have pleased the simple souls who like extreme measures, but I have no doubt that he will have pleased the great majority of those of moderate opinion throughout this country.

Of the specific measures that my right hon. and learned Friend has suggested, I welcome in particular his decision not to increase beer and wine duty. Even more strongly do I welcome the decision to reduce the spirit duty on whisky by 4 per cent. That may show my preference in terms of beverages. The Chancellor has faced up to the cross-border shopping problem in the European Union and taken a small step towards trying to bring sense into that matter. In the not too distant future, I should like duty on alcohol to be the same throughout the EU. That would be much more sensible, but it would require some reduction on our part and some increase on the part of the other countries in the EU.

I am pleased that, in his attempt to deal with vehicle licensing fraud, my right hon. and learned Friend has managed to avoid penalising vintage car owners. In the past 12 months or so, that matter has caused many of our constituents much concern. Like most right hon. and hon. Members, I have had much correspondence about it. I am glad that he has managed to meet the fears of those people, because one does not wish to damage what is essentially a hobby.

I welcome the reductions in the general betting duty and in the pools betting duty. There is no doubt that betting and particularly pools betting have been affected adversely by the lottery. Those duty reductions should ease the problem a little. I say that as one who, for the past 40-odd years, has done the football pools with very little success.

I am pleased about the assistance for people in nursing and residential homes. At this stage, it is difficult to comment, and I await the details that will, no doubt, be forthcoming in the next day or two, but I am sure that my right hon. and learned Friend was right to deal with a problem that, again, is causing great concern to many of our constituents.

One of the most encouraging of the developments that affect the British economy has been the pattern of wage settlements in the past year. Whereas during the 20-odd years after the war the main constraint on the British economy was the balance of payments, since the mid-1960s the main constraint has been the level of wage and salary increases and, consequently, the growth in earnings.

For most of the period from the mid-1960s until recently, wage and salary increases have been well ahead of inflation and of the rate of growth. Except when there have been short-term incomes policies or when unemployment has been very high, wage and salary increases have been at levels incompatible with low inflation. Consequently, over the past 20 years, under Labour and Conservative Governments alike, one of the main weapons to constrain wage and salary cost inflation has been a reduction in the demand for goods and services, to effect a reduction in the demand for labour to produce them and so a reduction in increases in the price of labour—in other words, a reduction in increases in wages and salaries.

Although that policy has been effective in preventing higher inflation levels, it has never been completely successful in eliminating inflation, even when unemployment has reached the 3 million mark. Moreover, its impact on inflation has been limited when unemployment has been below the relatively high level of 2 million. I have always found that policy unacceptable and I have been astonished that the British people have put up with it for so long. Whether they will continue to do so is a moot point.

In the past year, however, there has been an unexpected, but welcome, development in pay bargaining as wage settlements have been running behind the inflation rate. Moreover, there is no evidence of the build-up of a pay explosion that could reverse that development. That runs against all recent experience. It is especially encouraging because the recent inflation increase, which in any event seems to he falling back sharply, has had no effect on the position.

Of course, that may merely be the short-term consequence of recession, but that is doubtful because we have been moving out of recession for more than three years. It may be that it is due to the fact that unemployment is still more than 2 million, but that is also doubtful, because the pressure of demand in the labour market today is higher than it was last year or the year before, and in both years wage and salary settlements were ahead of the inflation rate. It may be that we are at long last experiencing some of the benefits of greater labour market flexibility.

Whatever the reason, for the first time for many years we are experiencing a more sensible attitude about pay bargaining. As a result, wage and salary increases are being determined much more realistically. If that continues, there is even greater cause for optimism about the economy than at the time of last year's Budget. Then, we had controlled economic growth, a much-improved balance of payments position, low inflation and falling unemployment. Today, the economy is still growing and the balance of payments, although not quite as strong as it was a year ago, is still much stronger than in most years in the past decade. Despite the pressures generated by a further year's growth, that development concerning pay bargaining means that the prospects for inflation are much better than last year, whereas we would have expected them to be worse.

Realistic pay bargaining also means, however, that the demand for goods and services, and so for labour, can be increased to a significantly higher level without provoking wage and salary cost inflation and bringing the expansion grinding to a halt. Consequently, realistic pay bargaining means that the prospects for further reductions in unemployment are much better than they were last year. Of course, at this stage, we cannot be certain that the pay bargaining pattern will not return to previous bad practice. There have been some ominous signs in the motor industry, but I hope that that will not happen, because the reduction in unemployment to levels that we have not experienced since the mid-1970s is vital for social and economic reasons.

First, unemployment is a severe affront to human dignity. The fear of not being wanted is an insult to the great majority of those without work, whose only wish is to have the opportunity to earn their living and support their families. Secondly, unemployment hits the good worker just as it hits the bad worker; it hits the hard worker and the lazy worker and the skilled worker and the unskilled worker alike, because unemployment does not discriminate. The great majority of the unemployed lose their jobs through no fault of their own.

Thirdly, the effects of unemployment on our society are very serious. It undoubtedly embitters those affected. It undermines their belief in our democratic system. It adversely affects the quality of their whole life, and not just during the period when they are out of work. Fourthly, of course, unemployment is economically wasteful. If the unemployed were in work, they would be producing more goods and services and so adding to our national wealth. There would be more for all of us to share in the form of higher real incomes and better social and public services.

I hope that the restraint in pay bargaining that has been shown during the past year can be maintained. The benefits in the form of lower inflation are evident: those in the form of lower unemployment are no less real.

5.31 pm

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

I shall touch on some of the remarks of the hon. Member for Staffordshire, Moorlands (Sir D. Knox). It took a long preamble to get to the basic and simple point he was making—unemployment is a curse. The communities that I represent have always believed that; they believe it as fiercely and passionately now as they did when unemployment was 65 per cent. in the 1930s.

I have been a Member of Parliament for nearly 28 years, and I find that the whole nature of Budgets and Budget debates has changed. The pattern of post-war Budgets was that they were statements of fiscal measures, rather limited in claim and scope. Frequently, the Budget was an annual fine tuning of the economy. I often heard Chancellors claiming that they were cooling down or stimulating the economy with a variety of tax and credit measures and interest rates.

Now the Budget is different. I am not exactly a fan of the decision to link public expenditure to the fiscal considerations, but it has broadened the nature and character of the Budget. The Chancellor's speech illustrated that point unequivocally. That decision has broadened the whole Budget debate so that it is about broad social and economic issues. In return, the public have come to expect much more of the Budget statement and of Chancellors.

The public expect that these big moments in parliamentary life will address the broader social issues. The Budget and the expenditure plans are meant to hit the big issues that face our society. One of the curious features of that developing pattern is that the Budget has to be a Budget for something. We have to have a slogan—a Budget for enterprise or a Budget for the family. The press have even mooted recently a Budget for marriage.

Increasingly, bewildering social and economic change is occurring in society and therefore Ministers and Chancellors are expected more than ever before to address big issues. The Budget has been presented as a combination of expenditure plans and tax changes and, therefore, I feel entitled to address this simple question to the House: how far has this combination of Budget and expenditure plans addressed the challenges and the problems facing the communities that I represent?

Let us have a look at what has happened to the communities that I represent. In the past 20 years, our world has been turned upside down in terms of jobs, employment, family and community. I do not exaggerate and I shall give some figures to illustrate the point. This year, we have celebrated the 50th anniversary of the birth of the welfare state and the end of the war, and the birth of full employment as the centrepiece of Government economic and social policy.

Beveridge's mission statement, to borrow a modern phrase, was the White Paper on employment. That White Paper stood us in good stead for the best part of 30 years in my community, which entered the war with 65 per cent. of people out of work and for most of the 1950s and 1960s had unemployment rates of 2 or 3 per cent. at most, rising in a bad year to 5 per cent.

Beveridge's image and vision of full employment in post-war Britain now reads very quaintly. Let me remind the House what he said. Beveridge envisaged that a man would work for 48 hours a week, for 48 weeks of the year, for 48 years of his life, in probably one job. His description of the family was: A family will consist of two persons, a male and a female, and their offspring. Women as housewives and mothers would have the vital duty of ensuring the future of the British race and the British ideal. In 1995, what a quaint description that is. However, that was the social basis upon which I was brought up, and that attitude was behind the assumptions that we made about the nature of community, society and the family. We cannot now, as I shall illustrate, assume in my communities that the family will consist of two persons—one male and one female.

Social change has been telescoped and accelerated in a way that people like me coming into the House more than 25 years ago could not have believed would happen. I have watched the expectation of jobs and careers, and a reasonable prospect of regular employment, disintegrate in the communities that I represent.

The belief that there was regular employment was the social cement of post-war Britain and post-war south Wales. That cement has been dissolving rapidly during the past 25 years. Increasingly, we do not believe some of the figures in the Red Book. Indeed, I have a sneaking suspicion that once again the improvements described in the Red Book are bypassing my communities. The Red Book states, in a paragraph on the labour market: Employment has continued to rise". In the county of Mid Glamorgan, on the most recent figures available, the number of people in employment has fallen quite significantly in the past three or four years. It has fallen from a high of 186,000 in the late 1970s to 145,000.

The most important test is the number of wage packets—however big or small they may be—and by that test the number of people in employment has begun to fall. The assumption we made in post-war south Wales and throughout the country was that, whatever levels of unemployment might occur cyclically, the levels of employment would continue to rise. That trend has disappeared in the past five to 10 years within the communities that I represent.

The character of employment has changed. The assumption that Beveridge made about the man being the wage earner has been stood on its head in the past 20 years. That has profound effects on the argument about tax. In Merthyr Tydfil and Rhymney, for most of the 1950s and 1960s, the work force were two thirds male and one third women. The most recent set of figures for the county of Mid Glamorgan—that traditional area where the industrial revolution started and developed—show that there are now more women than men in employment. I make no case about the rights and wrongs, but that shows a social change, the consequences of which we have not thought through. Combined with declining numbers of people in employment, that interesting and important change will affect social patterns.

The number of manufacturing jobs in the communities that were at the heart of the manufacturing economy of this country has fallen from 50,000 in 1981 to 40,000 now. That is at a time when, I read in the Red Book, the anticipated increase in the manufacturing deficit will rise in the coming year to £9.5 billion from £8.5 billion.

Whatever else the Government's economic strategy is supposed to have done, it has certainly not tackled one fundamental problem. It was not until about 10 years ago that Britain first had a manufacturing deficit, yet it now approaches almost £10 billion. At the same time, the number of manufacturing jobs in my community has fallen. We must reverse that trend quickly.

The other factor that has been prominent over the last 20 years is the so-called average wage. I do not know where the Government get their figures. I furiously hunt around my community trying to find the so-called Mr. or Mrs. Average earning £250 to £300 a week—on average. I can tell the Paymaster General that the 900 people left working at the Hoover factory do not get anything like £250 a week, even though Hoover is supposed to be one of the better paying employers. Even in the new, modern manufacturing sector, the average going rate for a full week's work is £150 to £160.

Wages and incomes in my community have fallen in percentage terms compared with the rest of the country. In Mid Glamorgan, earnings are only 69 per cent. of the national average. Therefore, not only is there a fall in the number of people in employment, but those in employment have less pay and lower incomes than the rest of the country. The feel-good factor is missing not only among the unemployed but among those in work in my community.

I have two other major concerns. The first relates not to the levels of formal registered unemployment but to the levels of economic inactivity in my constituency. Some 35 to 40 per cent. of men of working age are economically inactive in Merthyr, Rhymney and parts of Mid Glamorgan. It takes us back to the 1930s, in one form or another.

The second matter that worries me desperately, especially in the light of what I have just read in the public expenditure programme, is that we cannot account for one in five school leavers in Mid Glamorgan. We do not know where they are. They are not in work, they are not in training, they are not receiving benefit, they are not scrounging and they are not in any form of institution. One fifth of our school leavers have disappeared from our community. Perhaps they are at home or hanging around the streets; they are certainly not registered anywhere. Yet those are the very people who could become—I hate this American term—an underclass.

One in five school leavers are not registering for training, are not staying on at school and are not even collecting benefit. We cannot account for them. They should be connected somehow to work and to the community. They should be on some community programme so that they can begin to feel wanted. However, if we do now find them and try to make the connection with society, it will be too late because, just at the time it is most needed, the Government are abolishing the whole of the community action programme. I have never been a fan of that programme, but no one has come up with anything better. It is being abolished just at the time we need to make the connection with a highly significant group of young people who are not registered within our society as doing anything.

How does the Budget measure up to those needs? In a curious way, I was slightly relieved, because it was a little fairer than we expected. Perhaps that is why it went down so badly with Conservative Back Benchers. The income tax provisions were scattered through the tax bands, but Conservative Back Benchers wanted a huge cut in the 25p rate. With a bit of luck, if there is a little more money in people's pockets, more people will buy washing machines—that is desperately necessary for Hoover in my constituency. Perhaps the Budget will encourage more consumption.

The Budget does not deal with the problems of either the resigned middle-aged or the resentful young unemployed. As the hon. Member for Staffordshire, Moorlands said, it is time to put employment at the centre of economic and social policy. Unemployment has been the Government's anti-inflation instrument of the past 15 years; it has been the industrial relations instrument of the past 15 years; it has been the wages policy of the past 15 years. I can recall a Conservative Chancellor panicking when unemployment reached 1 million in 1973, and bringing in a Budget for jobs to counter that. We now live with 3 million people out of work, many of whom, of all age groups in my community, have been unemployed for far too long.

Sir David Knox

The hon. Gentleman pretends that the use of the level of demand in dealing with inflation has happened only during the past 16 years under a Conservative Government. I take him back to a previous Labour Government and the policies pursued by Denis Healey—they were exactly the same. In fact, the great break with the post-war consensus was in the mid-1970s, not at the end of the 1970s.

Mr. Rowlands

I would love to go back to the unemployment levels of 1978–79. If we had those levels of unemployment in my community, many of the social problems that I have described would not have become so significant. We have never supported—I hope that the hon. Gentleman would never support—the view expressed by the Bank of England in "Bank Briefing": Unemployment probably remains above its natural rate. Do the Government believe in a natural rate of unemployment? Is it just a Bank of England view or is it shared by the Treasury? Is there such a thing as a natural rate of unemployment? If so, what is it?

When the Chancellor meets the lugubrious Mr. George at his monthly meetings, as well as talking about the fine tuning of interest rates do they sit at the table and talk about the natural rate of unemployment? If so, what is it? We have never been told. I find the whole concept offensive, just as I found offensive the statement of a previous Chancellor that unemployment was a price worth paying. The concept of using unemployment in the way that it has been used over the past 15 years is offensive.

Employment and jobs should be put back at the centre of Budget judgments—and with that must come proper training. One of the real tragedies of the past 15 to 20 years has been the destruction of training opportunities. Measures to promote skills and work have been like a patchwork quilt. If we are to create a new skilled work force, skills training and jobs must be the centrepiece of our economic and social policy. If that is not done, the social trends that I have described will continue to undermine the stability and the social fabric of our communities.

Ministers boast about the extra money that is to be spent on policing to deal with crime; instead, they should deal with the prevention of crime. At the centre of much of the social tension and anti-social behaviour in the communities that I represent are the younger generation's lack of prospects and lack of hope for the future of their communities.

5.49 pm

Sir Anthony Grant (South-West Cambridgeshire)

I am glad to follow the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands). I think that I have been in the House a tiny bit longer than he has, but we have the same memories. I appreciate very much his concern about the unemployment problem, which his constituency has, perhaps, tragically experienced more than many others. I also share the views on unemployment expressed by my hon. Friend the Member for Staffordshire, Moorlands (Sir D. Knox), who has always given a very sincere view on that issue.

I do not share, however, the pessimistic view taken by the hon. Member for Merthyr Tydfil and Rhymney. I was glad that he referred to 1973, because I recall the occasion when unemployment hit the 1 million mark. We were in government. The hon. Member for Bolsover (Mr. Skinner) came across the Chamber and thumped the Dispatch Box in front of the then Prime Minister. There was a great hullabaloo. I had some responsibility at that time—I do not claim I was solely responsible—for regional development policy, and, before we were unceremoniously thrown out of office, unemployment had come down to 700,000, which was gratifying.

Mr. Michael Foot said that that level of unemployment was disgracefully high, and that it would not be tolerated. No sooner did Mr. Michael Foot take charge, however, then unemployment went up again, this time to 1.5 million—and it continued to rise.

Therefore, I do not think that the problem of unemployment can be solely attributed to one party or the other. Indeed, if I think back further, I think that I am right in saying that no Labour Government in this country have left office with unemployment lower than when they took office; it has been higher every time. Let us not have too much humbug on that issue.

I must declare all my interests, which are in the Register, but I shall certainly not be advocating them in any way, whatever that means. I am sure that, if I step out of order, you, Mr. Deputy Speaker, will immediately bring me to order at once.

Mr. Deputy Speaker

Order. Just for clarification, the hon. Gentleman must remember that it is for him to declare any interests that he has. It is not for the occupant of the Chair to decide the matter.

Sir Anthony Grant

I shall certainly not be advocating anything in any way, except the general interest of the public as a whole.

I have spoken in debates on many Budgets and Finance Bills during my 30 years in the House, and I have had the experience of no fewer than 10 different Chancellors of the Exchequer. This may be the very last occasion that I am able to speak in a Budget debate.

I have always believed that it is important to lower taxation so far as possible. I said that in the 1988 Budget debate and in the 1989 Budget debate. I said that I could never see any morality or merit in the authorities collecting vast sums of money from a vast range of people, sloshing and churning it around in a vast and expensive bureaucracy, and then doling it out to those who create the loudest clamour for more money. I do not believe that there is any morality or merit in that whatsoever.

Many years ago, long before the Conservatives came into office, I said that there was a need to shift the burden of taxation from direct taxation, or tax on work, to indirect taxation, which is tax on spending. I think that that has happened, and rightly so. I am glad that the Chancellor referred to that this afternoon.

I also believe, however, in a low interest rate policy. I think that the folly of the rollercoaster years that occurred under my Government in the 1980s, when low interest rates rocketed, came home to roost with a vengeance in the disastrous effect that they had on the housing market and, in particular, on small firms. Those are two causes—the spread of ownership, either through shares or house ownership, and the interests of small firms—which I have espoused in the 30 years that I have been in the House.

I therefore congratulate the Chancellor and the Government on the way that, in recent years, they have restored low interest rate stability, while at the same time containing inflation. I believe that that is the achievement of the present Chancellor and of the Government, despite the circumstances that they inherited.

I think that there has been far too much hype in the House and in the press on the reduction of taxation, although, as I say, I welcome it and I want it. There was far too much talk of pennies here and pennies there; talk of 3p or 5p off the standard rate raised expectations unnecessarily. I am a great believer in Chancellors going into purdah and not saying anything until they come to the House to present the Budget.

No good can come from lowering taxation if it revives inflationary fears which result ultimately in higher interest rates, because of a belief in the markets that inflation will take off again. In a sense, therefore, I believe that the Chancellor was right to be modest. The Budget was reasonably modest in the face of some people's high expectations of tax reductions. It could be described as a responsible financial policy, or what he would call a prudent one.

The Chancellor has avoided the peril of high interest rates, but, having said that, I hope that my hon. Friend the Paymaster General will pass on to the Chancellor my sincere hope that it will be possible to reduce interest rates further when the time is right. That more than anything else would encourage the two sectors that have suffered so much and which to a large extent reflect the feel-bad factor—the housing market and small firms, especially people starting up small firms. I leave it to the Chancellor to decide when the time is right—I accept that it may not be now—but I hope that interest rates will come down steadily. That, I understand, is the wish of industry and business generally.

I should have liked one further tax reduction. I have long advocated the complete removal of stamp duty on property transactions. I know that it would cost £700 million, but it is a ludicrous tax. Speaking in a Budget debate some years ago, I said that I could not understand how it had ever arisen. Now I know. It arose in the reign of William and Mary when, because of transport problems, it was very difficult to collect income tax or anything of that nature. It was easier to levy tax on property. However, those days are gone, and the sooner we see the back of stamp duty on property transactions, the better. Its removal would encourage movement in the housing market, which we all want.

Although the Chancellor said, I think, that mortgage interest relief at source was not going to be changed—at least not adversely—in the next two or three years, I hope that he will be flexible. If he wants to boost the housing market, it may be necessary to alter MIRAS. More important, however, is the need to keep interest rates stable, and preferably low. That, I hope, is the theme of the Budget, which I warmly commend.

The press and many Opposition Members said that the Budget would be one of bribes for the electorate, but I did not believe that. Every political party, of whatever political complexion, has since the dawn of mankind sought to bribe the electorate one way or another. However, the electorate are like the great Sir Francis Bacon who, when challenged, said: Certainly I take bribes—but I never allow it to affect my judgment! I think that the British electorate are just as sophisticated.

The reality is best expressed in these words, which I have cited in previous speeches: If you want to retain power you have got to listen to what people … say and what they want. If you talk to people in the factories and in the clubs, they all want to pay less tax. They are more interested in that than the Government giving money away in other directions. Those are very wise words. They were uttered on 14 March 1978, in an address to the Labour national executive committee, by no less a person than Lord Callaghan.

I agree with him, he is absolutely right, and I am glad to say that we are following precisely his precept. When people urge greater public expenditure and say that they are prepared to accept higher taxes to facilitate it, I find that they invariably mean that other people's taxes should be higher, not their own.

The Budget could be considered in the context of an election—undoubtedly the press and everybody else is considering it in that context. But in considering the Budget's effect, the electorate will also consider the alternative to it. As I said, I go back 30 years, in which there have been three Labour Chancellors. What is absolutely clear at the moment is that the electorate have not the faintest idea about the Opposition's policy on interest rates, inflation, borrowing, or how the Opposition's taxes relate to their spending. None of those policies has been revealed.

I am reminded of the late, great Aneurin Bevan, who used to say, "Why gaze into the crystal ball when you can read the book?" We can read the book. After 30 years and three Labour Chancellors, I can read the book. I remember very well that Lord Callaghan introduced corporation tax—adverse to business—capital transfer tax, selective employment tax and purchase tax increases. Then multi-rate VAT was introduced. Then Lord Jenkins, no longer a member of the Labour party, raised taxes more than any other Chancellor since the war. Then, of course, Lord Healey—amazing how all these peers seem to be involved—made such a hash of matters that we had to call in brokers from the International Monetary Fund.

The book of what the Opposition have done is available for all to see. The trouble is that, at the moment, it is wrapped in a plain cover, rather like those smutty books that used to circulate. Undoubtedly, the book will have to be opened at some time in the future, and when it is, the electorate will get a nasty shock, and will regard today's Budget as a winner.

The Budget passes the test that I always apply of whether it helps or harms small firms, wider share ownership and ownership generally. I return to employment, with which I began. We will increase employment only through the encouragement and development of small firms. Such an increase is not going to come from great big organisations—that has passed. The development and taking on of one, two, three or more people in a vast number of small firms will diminish the hideous curse of unemployment, in Wales and elsewhere.

The measures announced on the business rate, of which I very much improve, and the corporation tax concessions, are very helpful to small firms, so the Budget passes my test. The Budget passes the test of encouraging continued improvement in employment and of maintaining financial prudence, and it will contain inflation, which is absolutely crucial if we are not to have another boom-bust situation.

In due course, because the Budget passes the test of encouraging business confidence, which is so important to the welfare of people generally and not only business, it will pass the test of the British electorate when the time comes.

6.3 pm

Mr. Dennis Canavan (Falkirk, West)

It is a pleasure to follow the hon. Member for South-West Cambridgeshire (Sir A. Grant). I always listen with great interest to what he has to say, although I must confess that I do not always agree with him. None the less, he has a great deal of experience in the House. In fact, I am sure that he can remember being in the House when Conservative Governments would never have tolerated the high levels of unemployment which our people have had to suffer over the past 16 years.

I think that I heard the hon. Member for North-West Cambridgeshire saying that this may be his last Budget debate. I do not know whether it was a statement, or a hint, that he may not be standing again at the next election. If he is not going to stand, I wish him well. I do not think that he will be the only Conservative Member for whom it may be the last Budget debate. I watched very closely the facial expressions of many Tory Members of Parliament during the Chancellor's speech. They were hoping and praying that the Chancellor would deliver something to save their skins. Even on that narrow criterion, this Budget is doomed to failure.

The Budget also fails on criteria much more important to the people we represent. Let us consider the Government's taxation strategy, for example. A fair system of taxation is progressive, so that people who can afford to pay more in taxation do so, and people who cannot afford it pay less, or none at all. I would have thought that that was just common sense and basic justice.

But the Government have given priority in their taxation strategy to increasing the burden of VAT—of course, a very regressive tax—while at the same time using the income tax system to grant concessions, whether real or imaginary. The only people who have really benefited from that strategy are those earning very high incomes. The net result of the Government's policies is that most people pay more tax.

The Conservative party used to boast that it was the party of low taxation. That claim is now exposed as a myth, despite the Chancellor's decision today to cut the basic rate of income tax by 1p. Since the last general election, the Government have in fact introduced 21 new taxes, and increased taxation by the equivalent of 7p on the standard rate of income tax, costing the average family more than £800 extra a year.

If the Government were really serious about reducing the burden of taxation in a fair and reasonable manner, they would look at some of the unjust taxes which they have imposed over the past few years—and they could start with VAT on domestic fuel.

Last year, almost a year ago to the day, the Government suffered a humiliating defeat on the Floor of the House in trying to increase the rate of VAT on domestic fuel from 8 per cent. to 17.5 per cent. Despite that defeat for the Government, which was a great victory for us, many people on low incomes are still suffering hardship, and are dreading another long, cold winter, because they simply cannot afford to heat their homes. The Chancellor should have had the humility to admit that he had blundered by imposing VAT on domestic fuel.

I would like VAT on domestic fuel to be abolished completely, but I understand that that is forbidden by European Union law. I should have thought that, at the very least, the Chancellor could have announced today a reduction from 8 per cent. to, say, 5 per cent. The cost of such a reduction would be £500 million—quite a lot of money—but if he had wanted, the Chancellor could have raised at least six times that amount by imposing a windfall tax on the profits of privatised utilities. Yet he refused to do so, and tried to deride that proposal.

I sometimes wonder whether, when the Chancellor is sitting and smiling in his well-heated home at No. 11 Downing street, he really appreciates the frustration and anger of old-age pensioners, who are sitting shivering in their homes because they cannot afford to pay the heating bill. They dread the day the bills come through their letter box from the privatised utilities. Yet their generation helped to build those fuel companies, and the companies used to belong to them—and to all of us—before the Tory Government sold them off.

When pensioners sit freezing in their homes, fat cats such as Cedric Brown and all the rest of them on the boards of the privatised utilities are laughing all the way to the bank, with their bloated salaries and share options. The Government are imposing that obscene situation on our pensioners, and on many other people on low incomes.

A windfall tax on the privatised utilities would not only help to cut VAT on domestic fuel, but could be used to fund a public investment programme for creating real training opportunities and real jobs, especially for young people.

There could be public investment in the construction industry, for example, to help build houses for homeless people and to provide jobs for all the construction and allied workers in the dole queue. There could also be public investment to modernise and electrify our railway system instead of selling it off, which most people in this country do not want to happen.

We could have public investment to expand the home energy efficiency scheme. It is a national scandal that, in Scotland alone, 800,000 families cannot afford to keep warm, and that 270,000 homes in Scotland suffer from dampness. A properly funded home energy efficiency scheme organised throughout the United Kingdom would cost £1.25 billion per year, but it would be money well spent. Indeed, it would be money invested, bearing in mind the fact that the scheme would create up to 40,000 jobs and could save the national health service up to £1 billion per year—the sum spent on treating cold-related illnesses.

Instead of introducing such common-sense measures, the Chancellor has decided to go for the old Tory strategy of income tax cuts and public expenditure cuts. The recipe has been tried before, and it has failed. It will do nothing to help the unemployed, and will punish the recipients of social security benefits, including young single people under 25, and refugees seeking asylum. Despite the Chancellor's protestations, it is a recipe that will further threaten the national health service, education and social services for the elderly, the sick and people with disabilities.

No doubt many Tory Members of Parliament desperately hope that the Budget will do enough to save their skins. I do not think it will. The people of this country will see it for what it is—the last desperate act of a discredited Government whose time is up. The sooner the Government go, the better.

6.13 pm

Mr. Iain Duncan Smith (Chingford)

One always takes a chance in standing up to speak directly after the Chancellor sits down. All over the Chamber one sees everybody's head down, as hon. Members try to figure out exactly what has been announced. Many of us find out that about half of what we thought was there may not have been there—and I have been doing much the same myself. However, hoping that my hon. Friend the Paymaster General will forgive me if I make one or two errors, I shall press on, try to summarise what I think are the main features of the Chancellor's announcements, and welcome those that I consider the most necessary, which I should like to think the whole House will welcome.

We have managed to announce a Budget with the backdrop of a stable economic performance. Notwithstanding some problems, in general we have the most stable economic position that I can recall. That is in no small part due to the great changes that we made in the early 1980s. It is often too easy to talk about such matters in isolation, as if one needed to think back only two or three years. But our present position should really be seen in the perspective of the past 15 or 16 years.

For example, we sit here today without the usual threats that used to he made at about this time. I refer, of course, to the spending programmes that resulted when the great trade union barons used to put their tanks on Mr. Wilson's lawn and make threats about what would happen if everyone did not have higher pay.

We do not even discuss such threats now, and no mention has so far been made of them. I make a small prediction that problems with trade unions will not be mentioned in any of the speeches, because that problem has been dealt with and has gone. We now have more rational and reasonable relationships in industry. Most notably, we have the fewest days lost through strikes, probably anywhere in the western world, and certainly in western Europe.

However, certain things needed to be done with regard to the economy, and the Chancellor has been faced with one or two problems that he now has to resolve. We have had to bear down on public expenditure, and we must continue to do so. It is not good enough to look for short-term measures.

My right hon. and learned Friend is right to talk about a short or medium-term target of 40 per cent., but in the longer term, if we are to compete with the rest of the world—and its growth rates represent very serious competition for us—we must bring expenditure levels down even further.

It is no coincidence that our main competitors outside Europe have public expenditure percentages in the low or mid-30s. I refer to north America and Japan, although in the so-called tiger economies of the far east public spending is even lower. I do not believe that things will stay like that in those countries, but our target must certainly be the mid-30s as an overall percentage of public expenditure, once we have got through the 40 per cent. band. I am glad that my right hon. and learned Friend began to deal with it.

We on the Conservative Benches often fail to deal with the serious philosophical difference that divides us from the Opposition. That difference is wholly legitimate, and it is important that it be raised during the debate. Opposition Front-Bench spokesmen are now trying to claim the territory, to throw a blanket over their true position and to make claims that they think the public will accept.

However, it is we who believe in the concept of reducing taxation; it must be at the core of our strategy and we must never let up on it. Whatever else has happened over the past two or three years, for a Conservative Government to leave office with levels of taxation higher than when they came into office would be a problem for us. I recognise that my right hon. and learned Friend has begun to tackle that today, and I see that as a continuing saga over the next 12 months, to bear down on levels of taxation.

We believe that money is best spent by the people who earn it, not by the Government, and the only way to bring that about is to bear down on public expenditure. In that context, I welcome the overall reduction in public expenditure by about £3.2 billion. But I make no bones about the fact that I had hoped for more. It would be wrong of me to say that I hoped for £3 billion; I hoped for £5 billion, and aimed in my mind at that figure, simply because I believed that it would have been possible to obtain more.

However, I understand the constraints under which my right hon. and learned Friend must act, and later I shall talk about the reason why I believe that he set that course, and the basis on which I support it.

I notice the reserve at £3 billion. I understand that that represents a measure of justifiable caution, but it gives us greater scope later in the financial cycle to bear down further on public expenditure, so I hope that the £3.2 billion reduction is not the end of the story by any means. I welcome the measure on that basis.

I was particularly glad to see the measures to crack down on waste and fraud, the two big things that the Government seem to discuss every year. That crackdown will apply not just to social security spending, but across the board, and will include a reduction in central Government administration. The Government's intention to look at ways of cutting back on central Government expenditure is most welcome.

The running costs cuts predicted by my right hon. and learned Friend today of £2 billion by 1998 will be particularly welcomed by most of the public, who are having to earn a living and who—in some cases—are in tenuous positions regarding employment. The protection of employment for civil servants does cost, and it is only fair that we bear that in mind. Every extra civil servant place costs extra in taxation, and both the civil service and the general public should understand that bearing down on that cost is justifiable.

I am particularly interested in the social security budget, and I think that we have not given enough credit to my right hon. Friend the Secretary of State for Social Security who has, during a period of some three or four years, set about changing the way in which the social security system is delivered. I feel—I am sure that he would accept this—that he has further to go. After inflation, growth in social security spending was running at some 3 per cent., and my right hon. Friend is now predicting a reduction to 1 per cent. That is below growth rates predicted three years ago, and it is welcome. That heartens me, but I am sure that my right hon. Friend accepts that we have further to go than an increase of 1 per cent.

I was particularly concerned to note that my right hon. and learned Friend the Chancellor today enhanced the Government's stance on fraud. I am keen on the new financial incentives for local authorities to combat fraud, and I only hope that they will deliver them efficiently. My knowledge of some local authorities—particularly my own—does not lead me to believe that they will deliver as much of that as we might hope, but we live in a period of hope. The Government should consider holding local authorities to the reduction target of some £2.5 billion by next year, as we shall provide the resources for them to do so.

The shift in direction back towards traditional families is welcome. Many of my constituents who have chosen to have families and to seek to provide for those families have felt for too long that there are far too many ways in which those who have a less coherent approach to life may be able to jump the queue, whether in housing or in obtaining greater levels of benefit. The policies that my right hon. and learned Friend put forward today, which will be enlarged upon tomorrow, are moving some way towards putting right that situation. We should not shy away from showing to the country that we believe in traditional families.

I am particularly keen on the measures on housing benefit. Many of my constituents raise the matter regularly at my surgeries. The fact that single people under 25 have such access to benefit leads to the spiralling 239912 S cost of rented property in places such as Waltham Forest. We should encourage the return to the tradition of people spending greater lengths of time at home while looking for a stable environment and a stable job, and the housing benefit measures will help us to do that.

Because of the limited time, I have only glanced at the Red Book so far, but while I understand my right hon. and learned Friend's restrictions, it seems that we have some problems with regard to receipts. One has only to glance at the forecasts for the estimated outturn with regard to income tax to see that there has been a serious reduction, and the same goes for corporation tax, VAT, fuel duties, business rates and social security contributions. I accept that my right hon. and learned Friend has not had quite the scope that he would have hoped for because of the lessening of those receipts, but what do the receipts tell us? They tell us that the economy has slowed, and that problems are emerging because the predicted receipts from a growing economy are not there.

That leads me back to my point on interest rates. Last year, I stood here and said that I did not think there was any need for interest rate rises. I can put my hand on my heart and say that publicly, and hope that Hansard recorded it. But what I said has been borne out by events. Shopkeepers and particularly manufacturers in my constituency told me last year that they knew about the price hike in raw materials, and they said that, in the run-up to Christmas, they were all trying to push up their prices. But I was also told that the consumer was not bearing that increase. The consumers walked away from the shops for a period and the prices came back down again. So, in effect, the manufacturers bore the price hike in raw materials.

The Bank's predictions that we were rushing into a huge increase in inflation did not come true. For a few months—in an attempt to justify its position—the Bank bashed on at my right hon. and learned Friend. He raised interest rates last year, but resisted the pressure, rightly, later on. The Bank now says that the risks are more evenly distributed around the central projection than earlier in the year. Consequently, although not the most likely outcome, there is now a somewhat greater chance that inflation will be below 2½ per cent. in two years time. Well, it must be lovely for the Bank of England to push politicians to make decisions and changes, but as the economy began to slow, I did not hear the Bank saying, "Of course, we expected that." The reality is that, in a sense, the Bank has power without responsibility. The Government are responsible for those matters, and the Bank only gives us advice. I welcome my right hon. and learned Friend's resistance to the pressure all through this year.

I understand that this is a two-pronged Budget, the second prong being interest rate reductions. There is absolutely no question but that what has been delivered today has been a cautious but welcome Budget that reduces the levels of personal taxation. The Budget has found extra money for three key areas—education, health and law and order—to which the public wanted more to be applied.

I hope and believe, however, that my right hon. and learned Friend has in his back pocket the knowledge that he is going to reduce interest rates. If he does, we shall certainly be on course to make the economy grow over the next few years in a sustainable way. Businesses up and down the land will then get some real benefit from that growth.

I welcome all the tax reductions that have been made. The basic rate has been reduced to 24p in the pound, and I admit that I wish we could have gone lower. I expect that we shall go lower before the next election. That is not because tax reductions are some sort of bribe—I see some smiles from Opposition Members—but because of the philosophical divide between the parties. I do not believe that the Government have any right to stick their hand in my constituents' pockets to take their money before they get a chance to spend it. I would much rather let them spend it and find ways of levelling Government expenditure downwards so that we have to take less in taxation. So the focus on the family in the Budget today was welcome.

Many of us have said that those who have been most hit are families in which there is one major earner. I am most glad to see that my right hon. and learned Friend has raised the tax allowances by some £70. I should like to see him go further and make the allowances fully transferable so that we can see single-earner families gain even greater benefit. After all, they are probably the ones with the smallest margins. I urge even further progress on that, but in the meantime I welcome the measures that he announced to assist the family.

Perhaps the most welcome of the measures in the Budget and the one that has taken greatest account of one group who feel themselves hard done by is the measure to increase capital thresholds for residential and nursing care. We all know from our constituency surgeries that, although we have tried to encourage people to save, those who have saved wonder why they are penalised with regard to residential and nursing care. We have all faced up to that and said that it would cost to lift the thresholds. Yet we have to balance the incentive to save against provision and Government expenditure.

I am glad that my right hon. and learned Friend looked again at that problem for pensioners and raised the limit for nursing care from £3,000 to £10,000 and the limit for residential care from £8,000 to £16,000. Yet it was most intriguing that we did not hear a word from the Leader of the Opposition about that measure. He may not have heard it. I am assuming that he heard it and that he understood it. He may not have done. Not one word came from him in his Budget speech on that measure. So pensioners up and down the land have no idea whether the Labour party welcomes the measure or does not. I should have thought that it would have been the first thing that he mentioned and that he would have wholeheartedly welcomed it. He did not and he missed an opportunity, but I welcome it.

The Budget has paved the way to a serious interest rate reduction. It has given us the opportunity to demonstrate to people who have savings, who are on marginal incomes and who wish to create better lives for those around them and themselves that we believe in giving them that power. The reduction in taxation is giving back, not a bribe. It is saying to people, "We believe you can have more of your money. The economy needs the boost and you need the boost, and we want you to spend it on yourselves."

I look forward in the next 12 months to seeing the economy grow even more at sustainable levels and to demonstrating to the public, who had perhaps begun to lose a little faith, that we believe in them as responsible individuals who can take more power for themselves and who display much better community spirit and understanding than any amount of central Government expenditure can produce.

6.33 pm

Mr. Gerry Sutcliffe (Bradford, South)

It is interesting to see Conservative Members putting on a brave face after listening to the Budget. One could feel the penny drop this afternoon as they listened quietly to the Chancellor's statement. The hon. Member for Chingford (Mr. Duncan Smith) said that my right hon. Friend the Leader of the Opposition did not welcome the measures for the elderly. That is not true. He did, but he said that they were far too little too late. One could feel the penny drop as Conservative Members realised that what was hyped up this morning by the media and their spin doctors as the big bang Budget that would save the Tory party at the next general election would not save them. They realised that many of them will not be in the House after the next general election as a result of the Budget.

The Budget demonstrated the arrogance that the Government have displayed in the past 16 years. The Government hoped that ordinary people and the Opposition would forget what had gone on during the past 16 years and the waste of people. A generation of people are without work. The figures show that 800,000 people have been unemployed for more than 12 months. Resources have been wasted. We heard today about North sea oil and gas, which could have helped to create a booming economy and put people back to work, but public borrowing has been greater under the Tory Government than under any previous Government. We have heard about the horrendous sale of public assets at knock-down prices, but direct and indirect taxation are at their highest ever level.

The Budget continues the theme of the Tory Government—a Government who are so divisive. The Tories will never be forgiven by the British people. The key statistics which will rout the Government from office are on the distribution of wealth. They have created a society in which the real income of the top 10 per cent. has grown by 62 per cent. while that of the bottom 10 per cent. has dropped by 17 per cent. We have a two-tier society and a society that confines pensioners to living in poverty. Many young people are unemployed. They will now be homeless because they will not receive the housing benefit to which they are entitled. Many families live on welfare benefit. A third of the population in my city live on some form of benefit. We have a Government without vision governing a country which cries out for leadership.

There are several ways in which the Government could have stimulated the economy to create an effective environment for growth. They chose not to do so but to continue with a stop-start economy that relies on outdated, unjust and unfair cures. It is scandalous that the country spends £20 billion on keeping people out of work rather than improving the economy by providing desperately needed jobs in our communities, thereby raising people's self-esteem and letting them make the decisions that they want to make in their lives.

The manufacturing base has been destroyed. Communities such as Bradford have suffered greatly in the past 16 years. The history of Britain in the past 16 years could be seen as the inevitable effect of the decline in investment in our people, our infrastructure and our industry. The Tories have almost given up on Britain. The task facing us today is to equip Britain for the future by securing investment in industry and infrastructure and meeting the needs of people in today's society. Today's Budget did nothing to meet that task.

It is almost three years since the recession officially ended, but as we entered the Budget debate today Britain had a faltering recovery. There are still more than 2 million people unemployed. Borrowing is higher than expected. Inflation looks likely to overshoot the Government's own targets. Perhaps of much greater concern, we have critically low levels of investment.

The Tories have presided over the two deepest recessions since 1979. The economy does not have the capacity for strong growth. Organisation for Economic Co-operation and Development calculations show that Britain has fallen down the prosperity league from 13th place in 1979 to 18th in 1993. The main reason why we are falling is simple. We do not invest enough. In 1979 Japan invested 56 per cent. more, Germany invested 21 per cent. more and Belgium invested 11 per cent. more than Britain. Now the gap has grown even wider. Japan invests 141 per cent. more, Germany invests 60 per cent. more and Belgium invests 35 per cent. more than Britain.

The real issue in the Budget is not that income tax is a penny down but how we can increase investment and boost the economy. The fundamental difference between the Conservatives and Labour is that while Conservatives believe in a minimalist state in which the Government abdicate responsibility for investment, Labour believes that the only route to success is high investment in infrastructure, people and technology. They believe that investment will follow success; we believe that success will follow investment.

Conservative Budgets have consistently failed the country. The Conservative party's key promise in 1979 was that it would reverse Britain's decline. Sir Geoffrey Howe, as he then was, said in his 1979 Budget: in the last few years the hard facts of our relative decline have become increasingly plain, and the threat of absolute decline has gradually become very real."—[Official Report, 12 June 1979; Vol. 968, c. 237.] That is a prospect that I am not prepared to accept, and nor are the British people.

The Tories' record of the past 16 years is one of Britain's falling further and further behind. As originally pointed out by the Bank of England in its August 1995 inflation report, investment has been weak in the present recovery. In two years of the recovery, business investment has increased by only 4 per cent., compared with 28 per cent. in the 1980s and 16 per cent. in the 1970s. Weak investment and skill shortages are laying down the foundations of the next recession.

In 1994, total investment was more than 10 per cent. below the level that it was in 1989, before the recession. The investment share of the economy has fallen for six years in a row—from 24 per cent. in 1989, to 17 per cent. in 1994. In 1993, the United Kingdom was 20th out of the 24 OECD countries in terms of the share of the economy devoted to investment.

Investment is the key macroeconomic variable for growth, inflation, unemployment and trade. Not only does spending on investment increase output in the current period, but, as an addition to the capital stock, it can be used to produce three times as much output in the following period. With a higher capital stock comes higher capacity, which means higher growth rates can be sustained without inflationary pressures.

For all the reasons that we have heard, Britain has too small a manufacturing base. It no longer meets some domestic demands, so we have to import, which worsens the balance of trade. Higher investment is not only the key to growth and, therefore, to lower unemployment, but the means by which sustained low inflation can be achieved.

The Chancellor was keen to point out that manufacturing investment is 12 per cent. higher than a year ago, but it is still about 14 per cent. below the peak of 1989. In real terms, manufacturing investment in 1994 was 20 per cent. below the level of 1979.

The Government portray the United Kingdom as the enterprise capital of Europe. We heard it again from the Chancellor today—I think that he said it three times. He said that we achieved that status by receiving one third of all inward investment into the European Community in 1993 and more than 40 per cent. of Japanese and foreign investment. What is not generally recognised is that even more investment is leaving the country. Inward investment was £6.6 billion in 1994, but outward investment was £16.4 billion. Since 1979, the cumulative balance of inward investment less outward investment was a deficit of £58 billion. In 1979, manufacturing accounted for around 30 per cent. of the output of the economy. By 1994, that figure had fallen to 21 per cent., with a loss of more than 2.5 million jobs.

It is clear that, without tackling the problems of capacity in the economy, we face the re-emergence of the problems of stop-go and boom-bust, which have historically afflicted the British economy. Throughout the 1980s, the Conservatives argued that high unemployment was a price that had to be paid for low inflation. The reality is that high unemployment and high inflation are products of under-investment.

It is no good Conservative Members talking about the scourge of unemployment and how hard it is for people who are out of work, when the Government do nothing to sustain the economy. I have some sympathy with my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands), who said that the Bank of England and the Chancellor talk about the "acceptable" level of unemployment, but that there should not be an acceptable level. We must study ways to avoid it.

Unemployment is a waste of people and it shows an enormous lack of investment in the British people by the Conservatives. The Prime Minister took office in November 1990, and in June of that year the work force in employment stood at 27.186 million. By June this year, it had fallen to 25.7 million—a drop of 1.46 million. There are grave doubts about the accuracy of the unemployment figures. I have given the Government figures. There might really be more than 4 million people out of work. We see that in the large number of our constituents who do not have jobs.

Another worry is that the country has a problem with skills. There is a mismatch between the skills of the unemployed and those required by industry. That fact is accepted, not merely by Opposition Members but by the Deputy Prime Minister, who has called for a job skills audit. The unskilled and the poorly educated have suffered most from the rise in unemployment. The Tories have failed to invest in new technologies and industry and in the skills of the work force. In an internationally competitive global economy, where investment capital is mobile, a highly skilled work force is the key factor in competition.

The United Kingdom lags behind all OECD countries except Turkey in the proportion of 17 and 18-year-olds in education—180,000 of our 17 and 18-year-olds are not in education, work or training. As my hon. Friend the Member for Merthyr Tydfil and Rhymney said, they have gone missing.

The Government have slashed the training for work budget by 29 per cent. since 1992. In 1994, the economic adviser to Lloyds bank warned that Britain was in danger of becoming a low-skill economy unless the levels of investment and training in manufacturing were raised. He said: Low skills will discourage industry from adopting best technology, further undermining the need for better training. This downward spiral is probably the greatest threat to the opportunities now facing the UK". Those are the words, not of a Labour sympathiser, but an economist looking at the facts.

After 16 years of Tory government, it is funny that they are asking us to draw lessons, not from Britain, which they have been governing, but from the Asian tiger economies, where very different policies have been pursued. As usual, the Tories have drawn the wrong lessons from the Pacific rim. The main reason that they have been so much more successful than Britain in recent years lies not in the difference between levels of public spending, but in the much higher levels of investment, both public and private. They have achieved those higher investment levels by encouraging higher levels of savings and competitive domestic markets and by investing in education and infrastructure. They have promoted a culture that values long-term investment, not short-term return.

The Tories reject that role for government. That is why Britain has fallen so far behind in investment since 1979. While Hong Kong and Singapore invested £1.3 and £1.1 respectively for every pound per head invested in Britain in 1979, today they invest nearly £3. The lesson to be learned from Hong Kong and Singapore is not that public spending necessarily creates economic success, but that high investment does. Indeed, the lesson that those countries could teach us on public spending is that economic success can cut the need for public spending.

Essentially, there are two options for Britain—carry on with the failed prescriptions of the past 16 years, or adopt a new common-sense approach. For Britain in the 1990s and heading towards the 21st century, the central challenge of economic modernisation is to overcome the long-standing problem of under-investment in people and in our social and economic fabric to expand the capacity of the economy.

Investment must be a priority, and the Budget does not achieve that. We must ensure that investment is long-term. The Government have been too complacent for too long about investment and have ignored warnings from business, industry and the Bank of England.

The Budget is not about a choice between investment and tax cuts, but about increasing investment as the only route to decent public services and a sustainable economy. For the past 16 years—too long—we have suffered the political dogma of the Conservatives, and they have accused us of political dogma. The British public will not fall for the bribery of tax cuts. Conservative Members wanted cuts in the region of 4p or 5p, not the 1p announced today. The British public will not be bribed in the way that the Tories feel that they can be.

Last year, I was a member of the Standing Committee that considered the Finance Bill, which was an interesting experience in itself. A key phrase for Tory members of that Committee was the difference between tax evasion, which is illegal, and tax avoidance, which is legitimate. That subtlety allows disabled people to pay tax on benefits, while huge corporations employ expensive accountants to find ways not to pay it.

This Budget does nothing for people with disabilities, even though campaigning groups such as the Disablement Income Group continually ask the Chancellor for tax allowances similar to those available to people who are registered as blind. Why is there discrimination between disabilities? In a written answer on 9 March 1995, in column 265 of Hansard, the Financial Secretary to the Treasury replied that it would cost "£20 million" to implement a clause that would give equality of treatment to people with disabilities. That would have been money well spent. Instead, the Chancellor has hit hardest those who can least afford it.

The Chancellor's action in taxing disability living allowance without ensuring a fair taxation system is nothing short of scandalous. I am sure that we will return to that issue when the Finance Bill comes before the House.

Mr. Alan Duncan (Rutland and Melton)

Will the hon. Gentleman inform the House exactly how much extra the shadow Chancellor has committed the Labour party to spend on the disabled?

Mr. Sutcliffe

The shadow Chancellor has said that, when we are in government, we will have to inspect the books. We will have to consider what money is available for us to spend. My hon. Friend the Member for North-East Derbyshire (Mr. Barnes) introduced the Civil Rights (Disabled Persons) Bill last year, but it was seriously disrupted by the Government—their Bill, now the Disability Discrimination Act 1995, did nothing to enhance the position of people with disabilities. The disabled are not the only group that are disadvantaged in many other ways. They look both to national Government and to local government to provide efficient and effective public services, yet with the cuts in public spending, local government will carry the can disproportionately.

Last year's local government settlement failed to meet the cost to councils resulting from inflation, pay increases and the growing number of school children and old people. As a result, there were cuts in services and dramatic increases in charges for those that were left. My authority has faced cuts, including this year's anticipated cuts, of up to £60 million over the past three years. Our city's schools are falling down and have inadequate temporary classrooms. We cannot afford to allow our children's education and future to be jeopardised by poor conditions through lack of proper Government funding.

When, on deputations, we meet Ministers, they say that they are sympathetic to what they hear, but the reality is that the Budget does not allow local authorities to spend money. We know that the Government do not like local authorities, especially Labour-controlled local authorities, and that that is why they consistently attack them. Equally, the Government suffer the consequences because, in adversity, Labour councillors enjoy the support of the majority of electors.

The Government claimed today that they intend to spend more money on education. That is a necessary step, as we hear from teachers, parents and governors. Let us not have a sleight of hand whereby the education standard spending assessment is increased, but other services are cut and expenditure on other items reduced. That is not increasing the spend. We shall examine the documents that the Government produce and see whether we will get real, extra finance or whether what is given with one hand is taken by the other.

The council settlements should be based on priorities, not political favours—Westminster council obviously comes to mind. Failure to provide adequate funding for local authorities means that people pay more for less. As has been said often today, what the Government give with one hand, they take back with the other. The poorest people cannot afford to accept that.

The Budget fails Britain, as Government policies have been failing Britain for the past 16 years. It is without doubt time for the Tories to go and let in a Labour Government that could do much better in a shorter space of time.

6.51 pm

Sir Alan Haselhurst (Saffron Walden)

I welcome my right hon. and learned Friend the Chancellor of the Exchequer's description of his Budget as economically and socially responsible. I think that that is a fair assessment.

Apparently, the Budget lacked what the Leader of the Opposition described as great strategic vision, but we did not get much clue from his remarks as to what made up his great strategic vision. He mentioned that people were paying too much tax and he was critical of specific taxes. He is presumably trailing his coat. If he says that too much tax is being paid, the implication is that he would reduce it. If there are certain taxes that he does not like, the implication is that he would remove them if he had responsibility.

My hon. Friend the Member for Chingford (Mr. Duncan Smith) was wrong when he said that the Leader of the Opposition made no reference to my right hon. and learned Friend's proposals for long-term care; he did. In an aside, he said that, while he welcomed them, he doubted whether all families would benefit when it came to the small print. Presumably that is yet another spending commitment by the Leader of the Opposition. If he thinks that what my right hon. and learned Friend has done is insufficient, he would top it up if he discovered that some families were not going to benefit as much as he thought.

Mr. Nicholas Winterton (Macclesfield)

Does my hon. Friend know whether the Leader of the Opposition would support the proposals in the Budget or oppose those proposals, which I believe are progressive, long overdue and much needed?

Sir Alan Haselhurst

No, we did not get a clue on that. The right hon. Member for Sedgefield (Mr. Blair) just left it open. If he thought that what had been done would be insufficient, he might oppose it. Clearly, another spending commitment was lurking around there.

The Leader of the Opposition thought that one of the consequences of the Budget would be a possible increase in council tax. He said that disapprovingly, so we must assume that, if he had responsibility, he would not allow council tax to increase. The only way in which one can do that is either to cause spending to be reduced, or for further amounts of money from the central taxpayer to go out in grant to local authorities.

The Leader of the Opposition deplored the fact that the Chancellor had done nothing to reduce VAT on domestic fuel. Presumably, had he had responsibility, he would have introduced measures to reduce VAT on domestic fuel. The hon. Member for Falkirk, West (Mr. Canavan) estimated that a reduction to 5 per cent. would be worth £500 million. That is another commitment that we have heard from the Leader of the Opposition. He also referred to the possible demise of the community programme, implying that he would not cause that programme to disappear; presumably that is another spending commitment.

Mr. Denis MacShane (Rotherham)

When I learned Latin at school, I had immense difficulty with future negative conditionals, which are what the hon. Gentleman is offering us. Could he spend less time on what my right hon. Friend the Leader of the Opposition said, and tell the House whether he thinks that 1p off income tax is enough to save the Tories at the next general election?

Sir Alan Haselhurst

I will come to that. First, I shall deal, as I am entitled to in debate, with the great vision thing which the Leader of the Opposition was implying should be in the Budget for the forthcoming year. I am trying to find the items in his speech which were to add up to this great vision thing. All I have been able to find are commitments to further expenditure or reductions in tax.

The Leader of the Opposition deplored the 17 per cent. cut in the capital programme, so one presumes again that he would restore that cut if he was dissatisfied with the role played by the private finance initiative. He went on to say that he would want council house sales receipts phased into public expenditure—another commitment to expenditure.

Frankly, it does not add up. It is not a vision; it is not even a responsible alternative to what is being proposed. It is all, by implication, saying that the Labour party disapproves of anything that involves disadvantage to people, but is in favour of anything which people might find advantageous.

The only thing that the Leader of the Opposition had the grace not to mention this afternoon was the 10p rate of tax. At least he spared us that insult on top of all the expenditure commitments that were implicit in his remarks.

The right hon. Member for Yeovil (Mr. Ashdown) began to sound as though he were the most orthodox iron Chancellor in history. He deplored the fact that the Government were not being sufficiently responsible in bringing down the public sector borrowing requirement. The fact that it is coming down, and is scheduled to come down by £7 billion per annum, was apparently not good enough for the right hon. Gentleman.

If that is the case, he implies that he would bring it down faster. At the moment, the British economy needs that sort of extra discipline like a hole in the head. The PSBR is being brought down responsibly, but it seems that the Liberal party wants to impose much greater controls on the economy, which could only cause recovery to disappear.

The one fixed idea of the right hon. Member for Yeovil is that the standard rate of tax should go up. The right hon. Gentleman's increase in the standard rate of tax to pay for education is always 1p ahead of where the Government stand at any one time. How he could combine in the same speech the fact that he would want to spend extra on education, while at the same time offering a grudging welcome to the changes in allowances that my right hon. and learned Friend has announced today, I do not know. It is yet another Opposition party whose ideas simply do not fit together and make absolutely no economic sense.

Mr. Duncan Smith

He did not like the Labour party, though.

Sir Alan Haselhurst

At least he had that going for him, but they did not seem to like each other much.

The Government are accused of being out of touch, but I was glad to see that the Chancellor has been listening carefully to what members of the public have been saying to us over the past year. That is evidenced by the fact that there is to be increased expenditure on education, health and the police. That expenditure will be welcomed.

On a slightly lower key, the fact that some help will be given on betting duty will also be welcomed by people who have put that point to us. Although one cannot brush aside the revenues of between £3 billion and £4 billion that the Government legitimately receive from alcohol, the fact that the Chancellor has recognised the problems caused for the licensed trade as a result of duty on alcohol, and has tried to help in a small measure, will also be welcomed. My right hon. and learned Friend's proposal to help people with the cost of residential care will strike a chord with a great feeling in the country at present.

Three other problems worry people and cause them to be disaffected with the Government. Those worries have allowed the Opposition parties to cash in on that disaffection. The first is job insecurity, which is one of the great fears in the country. Unemployment is undoubtedly an extremely unpleasant experience for anyone to face. It is the Government's responsibility to try to run the economy in such a way that employment opportunities can be maximised. The key to that is maintaining a low-cost, low-inflation economy, which is exactly what this Budget has been designed to achieve on a sustained basis.

The Budget also provides help for small businesses, which is extremely welcome, because we must look to the small business sector if we are to maximise job opportunities in the future. That is a more sensible approach than believing that a minimum wage and a windfall tax are a magic formula to transform the economy.

Secondly, people are upset by what has happened to house values. I recognise the fact that my right hon. and learned Friend has not felt it appropriate to take direct action today, but if we can establish low inflation as the underlying basis of the economy, it will have a good effect on the housing market and help to boost confidence.

The general climate that the Budget attempts to create will have an indirect beneficial effect on the housing market. If my right hon. and learned Friend's judgment is right in that respect, we may also see a fall in interest rates, which will directly benefit not only present home owners but future ones. Reductions in mortgage interest rates have already been announced, but many people whose interest is calculated annually will not yet have benefited from any reductions. So good news is in the pipeline for home owners and potential home owners, and I hope that that will be sufficient to boost the housing market.

Another issue that has been at the heart of the debate so far is whether tax is of central importance to the vast bulk of people. Some people say that it does not affect how they will vote in a future general election, yet that does not seem to sit easily with the thrust of the remarks that we have heard from Opposition Members today.

It was interesting that, at the end of the Chancellor's speech, the cry of derision audible from the Labour Benches was, "Goodbye." It implied that Conservative Members had something to fear at the hands of the electorate because the Chancellor had not made bigger tax reductions. What do Labour Members think the British public want? Do they believe that they want lower or higher taxes? My instinctive feeling is that, naturally, the public want decent public services, but they want lower taxes.

The Chancellor has framed his tax reductions in the right way, because he cannot be seen simply to have gone for a crude election gimmick. Rather, he has tried to bring help where it is needed and can most fairly be applied. There was a strong case for some fiscal relief to sustain economic recovery. So the idea that one should simply reduce taxes for party advantage is nonsense against the judgment of many economic commentators.

The Opposition give themselves away by being unclear about whether they think the public are keen to have tax reductions. They realise in their hearts that the public want low taxes. If that is true, the public will see through the fog of confusion that characterises Labour's economic policy. Ultimately, it will come down to whether people believe that they will have a fairer regime under the Conservatives than under Labour. The Budget will enable important public services to be sustained at a satisfactory and improving level.

If the economy continues to expand at the rate predicted, and if people's confidence grows—with extra money in their pockets as a result of these measures, they are likely to spend more, thus boosting VAT receipts—it will have a beneficial effect on British companies, so that corporate taxation receipts will also rise. It can be demonstrated that it is possible to boost tax revenues for important public services while taking a smaller chunk out of individuals' earnings in the process. It is perfectly possible to combine those two measures. If taxes are reduced, it does not necessarily follow that less will be available for public services.

Throughout the 1980s, Conservative Governments showed that it was possible to reduce rates of tax while improving public services, and I believe that we are on our way to doing that again next year and for as many more years as people are wise enough to trust the Conservatives with the administration of their affairs. If they change track, they will return to a party that, by its very instincts, will tax higher because it wants to interfere and meddle, believing that it knows better than private business and can outwit the market in spending public money to achieve a given effect. The Labour party has always been shown to be wrong in the past, and, if it ever has the chance, it will be shown to be wrong in the future.

My right hon. and learned Friend has judged the situation right. His claim that this is an economically and socially responsible Budget will be vindicated in my eyes and those of the wider public as the months unfold.

7.8 pm

Mr. Austin Mitchell (Great Grimsby)

I will not follow the hon. Member for Saffron Walden (Sir A. Haselhurst) in his adventure in the pluperfect subjunctive, but I noted with interest that he had more to say about what the Labour party has advocated than about his party's Budget. That is probably a wise course.

There is an old saying that a Budget that plays well on the day is viewed as pretty disastrous six months later, whereas a Budget that is disastrous on the day is viewed better six months later. Frankly, that is the only hope for the Budget, because it is a rag-bag of pits and pieces. A curate's egg is good in parts—the Budget was a crate of curate's eggs. That is surprising, because the Budget was an opportunity for great ingenuity and inventiveness.

We have a Conservative party with its back against the wall, facing defeat, and an inventive Chancellor. I am an admirer of the Chancellor. He is extremely clever, insouciant, fun, and capable of clever footwork. If there were rabbits in the hat, he would be the Chancellor to find them. Those rabbits would be numerous, slightly overweight perhaps, and wearing big double bows and Hush Puppies. They would he beautifully fluffed and spruced up, ready to be exhibited to the country. Not a rabbit did we see. That must suggest either that things are worse than the Chancellor has told us, or that the Government's position is more desperate than we thought.

The only rabbit pulled out of the hat was deep-frozen—the public finance initiative. It is a way of pretending to do something; a policy of build now, pay later. If one gets private finance to invest in the public sector, it means that one does not have to pay for a building to be built, but, over the years, a bigger bill must be paid to the people who built it in the first place. We will not even get those buildings soon, so it is clear that it is a policy of building slightly later than the Government need to, and letting a Labour Government pay for it when they come in.

Mr. MacShane

Does my hon. Friend agree that perhaps the Chancellor has a rabbit in his hat, but is saving it for a little later next year?

Mr. Mitchell

I do not know. It is getting desperately late for rabbits, as the season is getting colder. Rabbits do not have much chance of surviving as we reach the end of November. I do not offer great prospects for rabbits. The Budget spells myxomatosis for those rabbits.

We are confronted by two problems, one political and one economic. We are confronted by a recovery that is flagging and at the end of its tether and a Government who are flagging at the end of their tether. The Chancellor did not do much about either of those problems. The political problem is that of a party that is addicted to cutting taxes. It is now quite rightly seen by the public, however, as the high tax party. They believe it is the party that increases taxes.

The Chancellor did nothing to dissipate that image. There was a useful reduction in tax on income from savings, which I welcome, because it is an obviously sensible measure. I also welcome the increase in allowances to take more people out of tax. It is right to do that. Both those measures are good, but they will not have people dancing in the streets of Grimsby or elsewhere, because they were not major measures.

Conservative Members' reaction to the reduction of 1p on the basic rate of income tax had all the warmth of an open fridge door. That reduction will not offset the increase in taxes for which the Government have been responsible since the election. It will not offset people's sense of betrayal about those increased taxes. My leader was perfectly right to describe the Budget as the "1p off, 7p on" Budget. That is the keynote of the Government's policy, and that is what the public will remember.

That 1p reduction would not get past consumer protection legislation were it a sale offer. A reduced sale good has had to have been on sale in the store at the price from which it was supposed to have been reduced, but to increase taxes by 7p and to reduce them by 1p does not fulfil the terms of that legislation. That measure will not help the Conservatives at the election, because the people will not be fooled again. It will not get rid of the feeling that the country has been treated abominably by the Government, who promised not to increase taxes but then increased them massively.

The Budget has failed disastrously to overcome the second problem of the economy. We had a welcome and belated recovery as a result of the Government being forced out of the exchange rate mechanism. They were right to come out, because we should never have gone into that insane trap in the first place. By coming out it, the Government were allowed to reduce interest rates, which allowed the recovery to develop.

Our recovery was not as great as the Italian one, because the Italians wisely devalued by more than we did, and became much more competitive. They were helped in that procedure by something that should be adopted in this country, too, because the Italians took most of the Government politicians off to gaol. The result was a collapse in confidence in the lira, which made Italian manufactured exports even more competitive. It is a very good economic management to take one's politicians to gaol. It destroys confidence in the currency, which makes exports competitive and taxes imports. I commend that strategy to the Government, who should start looking around their Benches for those appropriate for that treatment.

We witnessed an economic recovery in the country, but it is clear that the Chancellor and the Governor of the Bank of England between them set out deliberately to dampen that recovery, if not to abort it, because the Bank of England is obsessed with not letting manufacturers increase their manufacturing prices. Those manufacturers constantly' receive sermons from the Governor, who knows nothing about the dynamics of manufacturing.

Through the ERM deflation, British manufacturers kept exports going without a profit, just to keep their markets and their production going. They were in a desperate situation. They were starved, anorexic, because of the pressures on profits. They needed to increase prices to generate profits to pay off the debts accumulated at that time. When they did so, however, they were lectured by the Governor, who was determined to stop those price increases.

British manufacturers had to increase their prices, because one of the main causes of our tragedy is that the rate of return on manufacturing is half the rate of return on other commercial undertakings in other markets. It is also less than the rate of return on manufacturing in competitor countries. That is why we are not investing, and not expanding production. We are not producing enough profit—enough return—to finance the investment that the country needs.

Manufacturing needed a devaluation because of the way it had been squeezed and hit by deflation. Devaluation represented an opportunity to generate more profit, and it had to be taken. The Bank of England, however, determined as ever to maintain its discipline, and empowered by the published minutes of its meetings with the Chancellor, which give the Governor a platform from which to preach his usual ritual insanities to the country, was determined not to give manufacturers that opportunity. As a result, interest rates were kept far too high when the rate of inflation was coming down. As a result, the value of the pound was kept at a level far higher than it should have been.

In the past couple of years, real interest rates, allowing for inflation, have been double the historic average of real interest rates since the war. The result was an overvalued exchange rate, which was made worse because interest rates were then increased. The fall in those rates was halted, and the value of the pound was pushed back up. By those procedures, the recovery was aborted. I do not know why. Was it to be communautaire? Was it to show a spirit of good will and shared suffering with the French? Was it motivated by a desire to discipline manufacturers?

What was supposed to be an export-led recovery has been halted. Imports have begun to rise again. In the three months to August, United Kingdom exports—trade with the world, including the European Community—went up by 5 per cent., while manufactured imports went up 9 per cent. Manufactured output went up 1 per cent.

The latest non-EC figures, which come out in advance of those EC figures, are even worse. The export-led recovery is tailing off, and imports are beginning to rise again. Imports have a dominant share of our current market—that share has trebled to about 50 per cent. of the market for manufactures. As a result, the manufacturing trade deficit is now widening again. It was £7.1 billion in 1992, but this year the figure, at an annual rate, is £8.9 billion. Such is the deficit in manufactured trade.

Because of the rise in the value of the pound, our relative export trade prices are now 10 per cent. higher than they were in the fourth quarter of 1986. It is no wonder, therefore, that the growth rate is slowing; that manufacturing production has not returned to the level achieved in 1990, and is only a few points above that achieved in 1973. What an abysmal record. It is a record that has been beaten only by a few other countries. Nearly every country has increased manufacturing production by more than half in that period. Very few countries have not increased it. Our pathetic record explains the huge rise in unemployment, which is basically due to the reduction in manufacturing jobs.

The recovery that we have experienced since our departure from the ERM gives us an opportunity to reverse the record. The best way to do that—the action that the Chancellor needs to take now to atone for his failure to do anything in the Budget—is to reduce interest rates. He should take the Governor by the scruff of the neck and tell him, "Eddie, reduce interest rates."

They should be reduced by 2 per cent.—3 per cent. would be better, but 2 per cent. would provide some help, if that is the most that can be forced out of the Governor. A reduction in the exchange rate will turn the economy round, and manufacturers will realise that investment will pay off because exports will pay and the recovery will be sustained. Unless we take that action, we shall not obtain the investment in increased production that we need. The only way to boost exports, to tax imports and to increase productivity—which always increases with production—is to have a competitive exchange rate.

We need to turn round the economy, and the Chancellor needs to take steps to do that now. He has a great opportunity to do so while Europe is immersed in the monetary union folly, and while the French are sacrificing their economy to the policy of the franc fort. Here is our opportunity to revive our economy and boost a recovery that began with our departure from the ERM, but is now petering out. That recovery desperately needs boosting—we can and must boost it by reducing interest rates.

The Budget does nothing to boost the recovery, and must be summed up as a do-nothing Budget. It does nothing for housing, except to promise cuts in the money given to housing associations. It does nothing for local government, except promise increases in council tax. It does nothing for unemployment, except promise cuts in the training budget. It does nothing for the under-25s, except reduce their housing benefit.

It does nothing for a Tory party which is desperate for tax cuts to try to con the electorate back and to win their favour. It certainly does nothing for a nation that cannot wait to get going again when the economy revives, and cannot wait to get the Government out.

7.21 pm

Mr. Nicholas Winterton (Macclesfield)

It is always a great pleasure—I mean that—to follow the hon. Member for Great Grimsby (Mr. Mitchell). The hon. Gentleman and I share a number of common campaigns, one of which he has highlighted today when talking about his support for manufacturing industry and for increased investment in it. I also share that campaigning spirit with the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who heads an important Committee of the House, the Public Accounts Committee. On many occasions in the House, I have heard him speak with knowledge and fervour about what the Government should do for manufacturing industry, which is perhaps the only source of non-inflationary sustainable economic growth.

The manufacturing industry is vital to a sound, stable economy. Over many years in this place, under—dare I say it—successive Governments, I have highlighted the importance of manufacturing. The benefits that manufacturing can bring to this country have not been properly appreciated by successive Governments.

Like the hon. Member for Great Grimsby, I welcome the fact that we came out of the exchange rate mechanism, which had slaughtered industry and enabled us not only modestly to devalue but to reduce interest rates, which were such a penal impost on investment, which is so essential to manufacturing industry. The hon. Member for Great Grimsby and I also share common ground on the subject of the Governor of the Bank of England; our views are identical. I have said it before and I will say it again: I would award Mr. Eddie George his P45. I agree with the hon. Member for Great Grimsby that the Governor has no understanding of manufacturing industry, of what motivates those in manufacturing industry and what motivates people to create wealth.

I am delighted that, earlier this year, my right hon. and learned Friend the Chancellor resisted the tremendous pressure brought to bear on him by the Governor of the Bank of England to increase interest rates. We all knew that, if interest rates had been increased, the impact on the economy would have been disastrous. I am delighted that my right hon. and learned Friend resisted that pressure; in hindsight, he was shown to be absolutely right and Mr. Eddie George was shown, yet again, to be absolutely wrong. I agree with the hon. Member for Great Grimsby, who stressed the importance to genuine wealth creation in this country of our industrial and commercial sector.

I did not have much sympathy with the contributions made by the Leader of the Opposition, the right hon. Member for Sedgefield (Mr. Blair), or the leader of the Liberal Democrats, the right hon. Member for Yeovil (Mr. Ashdown). The Leader of the Opposition appeared to criticise the Chancellor, not on what he said in his Budget speech but on matters that the Opposition consider to be their strengths. The Opposition did not say what they would do with the economy and I hope that, during the Budget debate, they will spell out to us and, through the House, to the people of this country precisely how Her Majesty's Opposition, the Labour party, would seek to manage the economy.

I understand from what I have heard since my right hon. and learned Friend the Chancellor, the Leader of the Opposition and the leader of the Liberal Democrats spoke that Her Majesty's Opposition will not vote against the 1p reduction in the basic rate of tax. I warmly welcome my right hon. and learned Friend the Chancellor's responsible decision not to cut the basic rate of tax by more than 1p. Many Conservative Members would like to have seen a much greater cut, but I believe that, if my right hon. and learned Friend had reduced the basic standard rate of tax by more than 1p in the pound, the policy would have been misunderstood. I warmly congratulate him on his prudent and responsible move—a move that will not be perceived as the Government seeking to bribe the electorate of this country with their own money. I warmly welcome that decision, which was perhaps not welcomed by Conservative Members as warmly as it should have been.

To continue with my right hon. and learned Friend's strategy, he was entirely right to increase dramatically the tax thresholds. We all know that, if thresholds are raised, the lower-paid benefit to a much greater extent than if the basic rate of tax is reduced. My right hon. and learned Friend has increased the threshold—from the lower rate to the basic standard rate to the higher rate. That will be warmly received and I congratulate my right hon. and learned Friend on his policy.

Ultimately, the people of this country will judge my right hon. and learned Friend's Budget. Tomorrow we shall see what the economic pundits say in the columns of both the heavy and the tabloid press. We shall also hear what the City, the Confederation of British Industry, engineering employers and the smaller business community think of the Budget.

Dare I say to the hon. Member for Middlesbrough (Mr. Bell) that I see the Budget—I have not been prompted by anyone to say it—as the first stage of a package. The second stage will be seen this time next year. I am sure that the hon. Gentleman will accept that that is the strategy of the Budget. We have laid the foundations for the Budget of November 1996, and the benefits of today's Budget will arrive in people's pockets in April, May, June and July next year.

I accept that the benefits—which may be substantial—in next year's Budget will not arrive in people's pockets until, possibly, the 1997 general election campaign; indeed, I believe that will happen. We may be in an interesting position then, however: if the sound, stable economy of November 1996 allows the Chancellor to announce some goodies—if this year's satisfactory economic position is improved further—the election may be contested on the basis of whether the official Opposition support those extra tax reductions.

Mr. Jon Owen Jones (Cardiff, Central)

Earlier, in an intervention, the hon. Gentleman commended the Chancellor for not attempting to bribe the electorate with their own money. Is he now saying that there is a better time at which to do that—this time next year?

Mr. Winterton

No, I am saying that, by this time next year, it will be clear that we have a strong economy. In terms of economic activity and strength, we shall be at the top rather than the bottom of league tables. I do not merely quote Tory party sources; I quote the International Monetary Fund and the OECD. Many people now predict that the United Kingdom's economy will become stronger.

In his interesting speech, the Leader of the Opposition emphasised that only a pathetic 1 per cent. tax reduction had been made, as against the 7p increase that had taken place under a Conservative Government since the last general election. Is it not appropriate, however, for the country to return to its people some of the money that has been, and is being, taken from them, if it can afford to do so? I predict that—given the responsible, prudent, constructive and progressive Budget that has been announced today—we shall build on the strength of our economy.

We want low interest rates and low inflation. We have that, and I predict that, before Christmas, there will be a modest reduction in interest rates. That will give further confidence to industry and commerce; our exports will benefit, there will be more investment and we shall have a stronger economy. That will enable us next year to repay to the taxpayers some of the money that they currently entrust to the Government of the day.

I look forward to the future with confidence. If there is an aspect of the Budget that makes me a little sad and disappointed, it is the decision of the Chancellor and his advisers not to introduce a package to help the housing market. As many hon. Members know, I have championed the property-owning democracy for many years, and it is generally agreed that the housing market is in a very depressed state. We need to give it a kick-start—and we could do that in a way that I have suggested publicly in the House.

We could help first-time buyers by raising the MIRAS threshold from 15 per cent. to 25 per cent., and raising the threshold for tax relief eligibility from £30,000 to £50,000. The arrangement could be limited to five or 10 years, but it would kick-start the housing market without creating the property inflation of the late 1980s that led to the severe inflation problems faced by the Government as a result of certain decisions made by Lord Lawson when he was Chancellor.

I am prepared reluctantly to accept the Treasury's judgment. I believe that the Chancellor is right in saying that the housing market will recover in any event, as long as we have a low inflation economy with low interest rates. If I may be party political for a moment, however, I must add that I do not expect that improvement to feed through in time to assist the Government in a general election in the spring of 1997.

I feel that this Conservative Government owe a great deal to those whom they encouraged to buy homes—council houses, newly built houses and houses in the private sector. Home ownership has proved to be a successful policy, and has served the Conservative party well in many general elections; I only hope that the Chancellor's expressed belief that the housing market will recover is proved right. Sadly, I do not think that any such recovery will produce the confidence that will help the party to win the next general election.

My right hon. and learned Friend has felt the pulse of the nation. When I ask my constituents—and those in other constituencies that I visit, particularly in the north-west—about their main concerns, they cite the national health service, education and law and order. The order in which they mention those concerns may be reversed, but they represent people's priorities. The Government have allocated substantial additional resources to all three. An extra £878 million or so is being given to education, of which some £774 million will be channelled directly into local education authorities. I hope that the money will then be channelled into the classroom, so that children can benefit.

I was saddened by the attempt by the leader of the Liberal Democrats, the right hon. Member for Yeovil, to undermine that substantial additional tranche of education spending. I wonder what would appease him. What would he like us to do? Since 1979, the Government have dramatically increased the additional sums spent per pupil: spending has increased by some 50 per cent. in real terms.

Another subject close to my heart is the national health service. Opposition Members will doubtless accept that my commitment to the service is second to none in the House; it is shared by many, if not all, Opposition Members, and by a pretty good number of Conservative Members. I am delighted that my right hon. and learned Friend the Chancellor has decided to increase NHS spending by £1.3 billion in the next financial year. That is necessary if people's expectations are to be met and if we are to be able to take advantage of the huge advances in medical technology and medical science; so we should do just that.

Again, on law and order, as we know, there will be additional money for 5,000 more police officers. What is more—here I have a vested interest in relation to my constituency—the Government will provide resources for 10,000 closed circuit television cameras. Macclesfield's application for closed circuit television cameras in its town centre failed in the current year. I hope that any new application will be much more sympathetically considered, bearing in mind that additional sums are being allocated, and that it will be successful.

Again, my credentials for believing that the Government must be involved in infrastructure expenditure and have a duty to provide communications, whether by rail, road or air, to ensure that we are as efficient as possible, are, I think, second to none. Obviously, I have long supported the initiative that money should be attracted into infrastructure from the private sector. I hope that the private finance initiative will come up with the resources that the Government have estimated and have put to the House in the Chancellor of the Exchequer's Budget statement.

If industry is to be successful, if we are to increase exports and if, for instance, we are to take advantage of the channel tunnel—I mean not just the south-east but the north-east, the north-west, the northern region, Scotland and Wales—clearly, we must have considerable investment not only in our rail infrastructure but in our road infrastructure. I am delighted to support the proposal, and I encourage banks and other investors to find out how far they can go to take advantage of the private finance initiative to assist this country to be as competitive as possible.

The Chancellor of the Exchequer has been prudent—perhaps I am repeating some of my remarks. I am one of those Conservative Members who would have been upset and concerned if the basic rate tax reduction had been more than the 1p that he announced. It would have given the wrong signals. It might have resulted in an increase rather than a decrease in interest rates, and therefore it would have done a disservice to this country's long-term economy.

I hope, however, that the Paymaster General will take back to the Chancellor of the Exchequer my congratulations on his imagination, prudence and responsibility. I sat on this Bench deeply concerned that we might have sacrificed a golden opportunity to give the Government a chance to continue governing this country after the next election. I have no hesitation in supporting this Budget and the prudent resolutions that will result from it, especially in relation to the matter raised by my hon. Friend the Member for Saffron Walden (Sir A. Haselhurst): the position of the elderly and of people who may need to use either private nursing homes or private residential homes in their declining years. My right hon. and learned Friend's imaginative proposals to enable those people to receive tax relief on the savings and policies that they will take out to help pay for that cost are long overdue and will prove to be popular.

I have met many people who feel considerable resentment because they have worked hard, been prudent and saved during their working lives but, having saved, have been expected to pay the full and heavy cost of nursing home care or residential home care. Such facilities—again, I have crossed with my party on this—were previously provided by the national health service free at the point of delivery in hospital geriatric wards. We can all say that that was not ideal and that people's quality of life there was not as we would have wished. That may be true, but I have come across some desperate cases where people who have saved £30,000, £40,000 or £50,000 have gone through that money in two and a half years because of the heavy cost of certain nursing home fees, especially if they required an exceptional level of care, with fees up to £500, £550 or even £600 a week. It does not take a great mathematician to know that £500 does not go into £50,000 that many times.

The move of which the Chancellor of the Exchequer has given notice today will be warmly received and will remove the anger and frustration of many people who have felt that, having have been prudent, all their hard-earned savings will go merely to pay for residential care.

I warmly welcome the pronouncements of my right hon. and learned Friend. He is building for the future and I look forward with immense confidence to the Budget this time next year.

7.46 pm

Mrs. Anne Campbell (Cambridge)

As I listened to the Chancellor of the Exchequer this afternoon, I asked myself the questions: what does this Budget do for Britain and what does it do for my constituency? To try to visualise what effect this Budget will have, I tried to picture groups of my constituents and to assess their reaction to what the Chancellor said.

I think first about parents in my constituency who are extremely angry about local government funding and about the enormous cuts that took place last year. I think not only about their anger, but of their concern for educational standards, the level of cuts that schools have experienced, local library closures, cuts in community education and all the things that we care desperately about in our communities. I also think about parents who are dependent on child care, about the real lack of child care that we experience in this country, and about the difficulty that parents have in finding work that allows them to take proper care of their children because of the lack of public child care facilities.

I think about council tenants and housing association tenants because in Cambridge more than 4,000 families are on the waiting list for public housing. Nothing in what the Chancellor of the Exchequer announced today will help those people or give them hope for the future. That relates not only to people who are homeless, but to people who are inadequately housed.

During my advice surgeries, often, families with two or three children come to see me. They occupy two-bedroom flats, often they live on the second or third floor, where there is nowhere for the children to play. We should be doing something about the pressure and stress that those parents feel when they look after children in such conditions. We should be trying to help.

I know that many people are employed in temporary work. They are concerned about job insecurity. Nothing has been done in the Budget to help them. We have seen some measures to help small businesses, which certainly need more Government help. I want to describe a business that belonged to two of my constituents. The measures announced today would have done nothing to help them.

Yes, there are tax cuts and I believe that they will be welcomed by those on low pay who are finding life a struggle. However, that must be measured against the background of the 7p that has been put on taxes since the last election. The Budget has reversed just 1p of that. We have a 7p up and a 1p down Budget. I believe that taxes should not have been reversed in that way. I would have liked to see a reduction in VAT on fuel. That would have helped more people who are struggling now to make ends meet.

A short time ago I was visited by two of my constituents who ran a transport business. It was a very successful business which was expanding rapidly. It was the sort of company that the Government would feel was a shining light and an example to others of how to conduct a business.

Two or three years ago, the Bonfields found it necessary to buy new lorries, which were purchased on credit agreements. I understand from different manufacturers that the lorries proved to be of unmerchantable quality. They suffered multiple mechanical breakdowns, not so much in this country as in eastern Europe and elsewhere. My constituents found that, despite promises that had been given at the time, there were totally inadequate servicing arrangements, and the business rapidly began to lose money. It lost money to such an extent that the Bonfields went out of business.

When my constituents set about trying to sue the finance companies which had supplied the money to pay for the trucks, they found that, because of an exclusion clause in the contract—it was a completely standard contract between a finance company and a small business—they were prevented from taking any legal action.

My constituents were so concerned about that that they came to me to see whether I would lobby the Department of Trade and Industry about trying to improve the regulations applying to contracts between the larger finance companies and small businesses. I received an answer from the Department which told me that the Government, far from trying to tighten the regulations, were thinking of abolishing them completely. That illustrates well that the Government's attitude towards small businesses consists of just warm words. Describing small businesses as the engine of the economy is fine, and I believe they are, but we are not giving them the help they need if they are to conduct their business successfully.

So often we find that the stakes are raised in favour of large businesses and large finance companies and the small businesses have no teeth in the face of that. Small businesses could be given more help and, although I welcome what is in the Budget, we could be doing far more to ensure the survival of those important companies.

Mr. Nicholas Winterton

Will the hon. Lady tell us what she would do for small businesses?

Mrs. Campbell

I just described a situation which arose because of a lack of regulation. Nobody wants red tape, but we want to see proper protection for small businesses, particularly when they are dealing with large finance companies which are cleverly trying to raise the stakes to ensure that they do not suffer if anything goes wrong. That is unfair to the small businesses.

Today we have seen a small amount of help given to families with the child care allowance for those on family credit. I welcome that, but it does not go far enough and is not sufficient to help many of those families get out of the poverty trap. The child care allowance for those on family credit was introduced in a previous Budget and I believe that a pathetically small number of parents have been able to take advantage of it so far. The problem is not with the allowance but with the fundamental changes that are needed in the social security system which will allow people to climb out of the poverty trap.

The real problem is that, because of the way in which the tax and benefits system works, parents often find it more beneficial to be on benefit than to go out to work, even if that work is not particularly low-paid. This is some attempt by the Government to try to reverse that, but it does not go far enough and I do not believe that it will help many parents.

Over the past few years, we have seen a real rise in the number of single-parent families. Often that is not because parents choose to live as single-parent families. It has been found that 60 per cent. of single-parent families have been through divorce, separation or bereavement. Only 4 per cent. of those families are women under the age of 20 who have had babies out of wedlock. We should be giving families more help to climb out of the poverty trap.

I was struck by the case of another of my constituents who came to see me. It was a woman with two children who believed that she was in a stable relationship. She had a part-time job. Unfortunately, because of a breakdown in the relationship with her boyfriend, he threw her out of the property in which they were both living. She found that she was unable to continue working because of the way in which the tax and benefits system operated. It was a crazy situation. She found that the Government were paying her £600 a month in benefit, whereas, if they had instead been prepared to pay her £200 towards the cost of child care, she would have been able to continue working. That is the sort of absurdity that creates real difficulties for people.

Many such families are living in dire poverty. They do not have enough to eat and cannot buy proper clothes and shoes for their children. Surveys have shown that 90 per cent. of single parents wish to return to work. Cambridge has a high number of lone-parent families and, at the same time, the city has a skills shortage. It seems absurd that we cannot marry up the women, many of whom have high skills levels, with the jobs that need to be filled, because of the way in which the tax and benefits system works.

We want to see not just straightforward cuts in benefits and the fiddling around the edges that have been announced in today's Budget, but a real restructuring of the social security system, which will alleviate the poverty trap and allow parents to return to work without being worse off.

In Cambridge, we are taking an innovative approach by setting up a series of one-stop shops to give parents the advice they need when they are trying to get hack to work. Such parents need advice on benefits child care, jobs and training. That information is usually scattered, and it is difficult for parents to travel around the city or to make telephone calls to obtain advice from different places. We are hoping that putting all that advice in one place will prove to be a real boost to parents who want to return to employment.

As I said earlier, there is major concern about the effect of the Budget on education. I have been doing a little arithmetic while hon. Members have been speaking, trying to work out what the local government settlement will mean for education in my county. Last year, it meant that Cambridgeshire county council had to cut its spending by £17 million. In fact, it took £10 million from its reserves, so the cut in expenditure was only £7 million. I say "only £7 million", but that still meant huge cuts in school budgets, with the loss of more than 100 teaching posts and many auxiliary posts. Some schools escaped the consequences by taking money from their reserves. However, unless there is a huge injection of money, there will have to be further cuts in the coming year.

There have also been huge cuts in the library service. Opening hours have been reduced and there have even been some full-scale library closures. My local library, which is celebrating its 100th anniversary, will, I am sad to say, close next year. It is well used by elderly people and those with young families. Indeed, from an early age all my children borrowed books from the library when learning to read. There have been huge cuts in community education. Youth Action, a club in the Cambridge area which teaches young people socially useful skills, has suffered huge cuts and there is now a danger that it will have to close.

What does the Budget mean for Cambridge and Cambridgeshire? The usual calculation is that the county gets about 1 per cent. of the money that goes into the general budget, so 1 per cent. of the £780 million that the Chancellor announced today will mean, if my calculation is correct, that Cambridgeshire will get about £8 million. However, we must remember that last year we had to cut expenditure by £17 million, so we are still short of £9 million on our 1994–95 settlement—and that is in cash terms, without taking account of inflation.

Many of the parents who have worked so hard writing to the Secretary of State for Education and Employment, the Chancellor of the Exchequer, the Chief Secretary to the Treasury, the Secretary of State for the Environment and everybody else they could think of, will be bitterly disappointed. When today's announcement is translated into the effect on their schools, libraries and community groups, I fear that the cuts will be as bad as we had all imagined they would be. Although the £8 million will make up for some of last year's cuts, it is not anything like enough to reverse their effects completely. There will be a real reduction in the standard of education in Cambridgeshire as a direct result of the cuts that today's Budget has not reversed.

I want to raise two other matters. First, I welcome the additional help for elderly people who have to pay for residential care—although again I have to say that it is too little, too late. It will do nothing to help those who have to sell their homes to pay for private residential care, because the amount by which they have to reduce their income to prevent them from having to contribute is too small.

I also welcome the increase in tax on tobacco. My personal view is that smokers cost the national health service millions of pounds for care that they would not need if they did not smoke, so it is right that they should be taxed to pay for that. Of course, not only do the smokers suffer from their own smoke: non-smokers inhale cigarette smoke which can lead to breathing difficulties and even cancer and heart disease. I hope that the tax increase will encourage people to stop smoking.

The measures in the Budget are minor. The Chancellor is fiddling while Britain burns. What was needed was a Budget to raise investment levels, to reduce unemployment—especially among the young—and to increase the real level of prosperity among our people. The Budget tackles none of those, and I do not think that the Chancellor intended that it should. He wanted a Budget that would set the Conservatives on course to win the next election. That will be a difficult task. It is five years since John Major was elected leader of the Labour party—

Madam Deputy Speaker (Dame Janet Fookes)

Order. I remind the hon. Lady that she must refer to the Prime Minister by his title or by his constituency.

Mrs. Campbell

I apologise, Madam Deputy Speaker.

It is five years since the right hon. Member for Huntingdon (Mr. Major) was elected leader of the Labour party—

Mr. Peter Bottomley (Eltham)

Will the hon. Lady give way?

Mrs. Campbell

In a moment.

I want to explain what has happened since that momentous event. On average, there have been six tax rises every year; unemployment has risen by almost 500,000; average economic growth, excluding oil, has been only 1 per cent. per year; annual house repossessions have more than doubled; more than one third of those who bought houses in the year that the right hon. Gentleman became Prime Minister now have negative equity; the number of households dependant on income support has risen by 40 per cent.; the cost to taxpayers of benefits resulting from Government failure has risen by £750 per taxpayer; and recorded crime has risen by 12 per cent.

Mr. Bottomley

Will the hon. Lady give way now?

Mrs. Campbell

Not at the moment.

What has happened will not be easy to reverse through a simple Budget tax cut—and certainly not by a 1p in the pound tax cut. The Chancellor has failed dismally, as was evident from the expressions on the faces of his Back Benchers. We saw the looks of dismay as the Chancellor sat down and they realised that that was it. The underlying weakness of the economy and the trade deficit that was announced last Thursday—the worst ever—show why the Chancellor has been wholly unable to satisfy his Back Benchers. The lack of investment, job insecurity and the lack of any increase in prosperity will not be reversed by the Budget. It is no wonder that the Tories were so dismayed by what they heard.

8.7 pm

Mr. Barry Jones (Alyn and Deeside)

I am glad to follow my hon. Friend the Member for Cambridge (Mrs. Campbell), who made a cogent and caring speech.

I wanted a Budget to create employment, to invest in our manufacturing industries and to create a climate of job security. There is a climate, but it is a climate of fear of losing one's job. Whether one is a humble labourer or a princely manager, that sense of fear intensifies as each month goes by. I do not believe that the Budget will dispel that fear in any way. That is my main complaint about and greatest disappointment in today's Budget. The fear of losing one's job exists even in the cradles of industrial activity in the northern regions, in Wales and in Scotland, just as it exists in the previously prosperous settlements of Hampshire, Sussex and Surrey.

I had hoped for a strategic Budget. I had hoped for a Budget for secure jobs. I had hoped for a Budget that would put manufacturing first, above all else. It should have been a Budget to restore Britain's manufacturing greatness to what it was in yesteryear. Instead, it was a Budget to restore the electoral fortunes of the Conservative party. It was a Budget that was clearly conceived in panic, designed to meet a coming electoral crisis and, I thought, crafted with old-fashioned political cunning. Certainly it was a speech delivered with great panache and steely resolve by the Chancellor.

The Budget speech was competently and confidently delivered by a Chancellor who, most of us would say, had earned a political reputation as a mugger—a mugger of teachers, policemen, doctors and nurses. I must say, however, that he is a cheerful bully—a very cheerful bully—but today he was a parliamentary conjuror. What were the balls in the air? They were taxes, concessions, impositions, cuts, statistics, benefits, promises and giveaways.

I summed it up in my own mind as the Budget of the short term. It does not deal with Britain's pressing problems, specifically that of getting young people back into work. In my view, that is a gigantic task, and the Chancellor ignored the challenge. One in 12 people are out of work; one in six young people in our country are now jobless; 41 per cent. of young black men are out of work; and 61 per cent. of young black men are jobless in Greater London.

Chronic long-term unemployment persists. I understand that more than 800,000 people have been out of work for more than a year, and that 650,000 18 to 24-year-olds are out of work. By any measure, they are the statistics of despair. They guarantee more crime—more drugs-related crime—and they demonstrate an unforgivable injustice. Those statistics put to shame recent Administrations who have received £120 billion of oil revenues since 1979. Those same Conservative Administrations have also received about £80 billion-worth of revenues from privatisation receipts. It is clear that this Budget is a great missed opportunity.

I wanted a Budget to get young people off the streets and to give them work, better training, hope and self-respect. If we do not find meaningful work for the tens of thousands of young people, our society will fall apart.

On the bigger estates in my constituency, there are homes in which neither father nor son has work. There are streets full of citizens who are out of work and have no reasonable prospect of gaining jobs. That is an injustice and a scandal. It is also a dangerous failing that bodes ill for the future of our society. In my county of Clwyd, some 13,000 people are now out of work. There are 2,500 unemployed people in my constituency, and Wales as a whole has a major problem with long-term unemployment.

The priority must be to create real jobs with real wages and real status. Too many young men and women now leave school and college with no prospect of meaningful employment. Too many housing estates are suffering a terrifying drugs problem; burglary is rampant; there is perpetual vandalism; pensioners suffer foul-mouthed verbal abuse; and women are fearful of going about their business.

Lack of employment is the main problem for 18 to 24-year-olds. The Budget offers no certain remedies for those who have no work, but fear stalks the employed in the now embattled steel and coal communities in my country of Wales. We have made huge sacrifices in our country. We have co-operated constantly in demanning; we have increased productivity and ensured flexibility at work, but the fear of losing one's job remains.

My own community of Alyn and Deeside in north-east Wales experienced Europe's largest ever redundancy scheme in 1980. There were 8,000 Shotton steel job losses in only three months. The losses occurred between new year and Easter. They were a severe blow to my constituency, and the effects of such titanic losses remain to this day. I can report that we have made a new economy, but it is not large or prosperous enough to offer work to all those who lost out in the steel closures. Many of the new jobs are part-time or for women only; many are unskilled and often pay lamentably poor wages. Fear and unemployment remain.

A further problem is that my excellent constituency district council of Alyn and Deeside is to be merged with another on 1 April to form the new county of Flintshire. The leadership of the unitary Flintshire county council fears that we shall start the new financial year with a large budget shortfall. Flintshire fears that the quality of services in, for example, community care and housing will decline or that council taxes will rise considerably. We are millions of pounds short. So that the new Flintshire county council might begin its life with a just and fair apportionment of money from the Welsh Office, I plead with the Chancellor, even at this late hour, not to starve Flintshire of cash. It simply wants fair play, so that it can continue to deliver first-class services and avoid a major increase in council taxes.

The Budget is supremely indifferent to the long-term needs of the economy. Our manufacturing base has shrunk, the balance of trade is wretched, our industries need investment, there are major skills shortages, our society is divided and there is a large underclass that has no prospect of meaningful work or prosperity.

The Chancellor was applauded noisily by Conservative Back Benchers as if he had performed a heroic parliamentary feat, but it was a hollow triumph, if triumph it was. When the cheering fades, the industrial landscape of a once great Britain will still be littered with the awesome wreckage of our once mighty manufacturing industries. The following list is frightening: the coal, shipbuilding, steel, aerospace, cement, brickmaking, motor, rolling stock and textile industries comprise a grim roll-call of decline, shrinkage and disappearance. They have experienced a blizzard of redundancies since the early 1980s.

A terrible reckoning lies ahead for the Government and the Chancellor. That reckoning will come at the election. Clearly, from what has been said today, that election will be in 1997—probably as late as May in that year—not 1996. But whenever the general election takes place, it will be a disaster for Her Majesty's Government—a disaster approaching Canadian proportions.

8.19 pm

Mr. Peter Bottomley (Eltham)

The hon. Member for Alyn and Deeside (Mr. Jones) did a service to the House in reminding us of the differential impact of unemployment on young people. If there is a discernible difference throughout the United Kingdom between young blacks and whites, as there is in Northern Ireland between young Catholics and young Presbyterians and young Protestants, such problems need to be tackled if we want to be fair to people. Whether it is a matter of expectations or of opportunity, we have a duty to ensure that one cannot tell whether someone is likely to find work because of the colour of their skin or the denomination under which they have been brought up.

I hope that, in Northern Ireland, we will not be able to say that a 16-year-old or 18-year-old young Roman Catholic will be three times as likely to be unemployed as a Protestant. I hope that, in London and other cities, we will not be able to say that, just because someone is of an Afro-Caribbean or Asian background, or just does not appear to be the normal sort of colour of people who have been here with different employment experiences, they are more likely to be unemployed. We must tackle the issue and show that there are reasons to work at school and to get training, and reasons why people should be chosen for jobs—their qualifications—rather than disqualified on prejudice.

I pay tribute to hon. Members on both sides of the House who have tackled such issues openly. The problem needs tackling in employment, in terms of clubs, in housing, everywhere, so that people are judged on their merits, needs, talents and abilities, and not on what appears to be the colour of their skin. I look forward to the time when the colour of someone's skin is about as interesting as the colour of someone's hair or eyes or height or weight. It may be noticeable, but it should not be what determines how people are treated.

I say to the hon. Member for Cambridge (Mrs. Campbell) that, besides a slip in her copious notes about the party in which the Prime Minister has been for all his time in Parliament, her arithmetic was not quite right to suggest that, for each year that my right hon. Friend has been Prime Minister, unemployment has grown by 500,000. I thought that we were celebrating the end of his fifth year as Prime Minister. If unemployment had risen by 500,000 each year that he has been in office, the figure would now be 2.5 million. It is less than that, and the figure was not zero when he took over.

So my right hon. Friend the Prime Minister deserves congratulations on helping to get unemployment down. Those congratulations should be shared with people in industry and the services, who have helped to create the jobs. In the end, customers guarantee jobs. Indeed, customers around the world and in this country have caused the resurgence in our motor industry, and have helped by buying typewriters, electronic processors, computers and television sets made in this country.

Many things which we previously thought were always going to be made overseas are now being made here. I have in my pocket my Psion computer, which is made in Greenford in Middlesex. Who would have guessed that 16 years ago, during the last days of the Labour Government?

In this debate, many hon. Members have spoken about the major issues, and I shall not repeat what has been said, except to echo that if the so-called average family gains by £450 a year, that is a bonus, and it is far better to receive it in tax reductions than by artificial pay increases which lead to a resurgence of inflation.

We can rightly say that one area of agreement across the Floor of the House is on the belief that inflation is bad. It is bad for employment opportunities, and there needs to he the kind of rigour that we have seen during at least the past three years, and which it would be right to say that we saw in the last three years of the Labour Government up to 1970. In times in between, both the Labour party and the Tory party forgot about some of the essentials.

I turn to one or two details of the Budget. I welcome some of the changes to the taxation of motor vehicle fuels. To recognise the lower levels of pollution caused by liquified petroleum products and compressed natural gas is worth while, and builds on the changes made to charge a lower excise duty, and therefore a lower retail price for unleaded fuel.

I welcome what the Chancellor has done to take away the tax subsidy for super unleaded, which I regard as an unnecessary fuel. It is not important, nor does it have a real market share, and the sooner that people decide on commercial grounds to get rid of it, the better.

Having said that, for those who use petrol, I think that I am right in saying that about a third of vehicles are still refilled with leaded fuel. When I was at the Department of Transport as an assistant Minister from 1986 to 1989, it was calculated that only 10 per cent. of vehicles needed to use leaded fuel. That means that, for every vehicle that should use leaded fuel, probably twice as many use it unnecessarily. I recommend that people contact their motoring organisation or the car's manufacturer, and check whether their car can use unleaded fuel or can be adjusted to use it. That would be a saving in the pocket.

The Treasury team have missed one opportunity to extend the alteration of fuel duties on environmental grounds. They should look at what I call low-sulphur diesels—otherwise known as city diesel, which is not a proprietary name. I am aware, as a result of the parliamentary answer that I received today, that, in fact, most of its low levels of sales are made through one supermarket chain of stores.

If there were a sensible rearrangement of the duties on that low-sulphur diesel, not only would more people think of using it. but more of the major oil suppliers would think of making it available on their forecourts. As they get rid of the super unleaded, there would he an opportunity to provide the cleaner diesel.

I cannot go into the full air quality details in a short speech, but if the Government chose to make an adjustment at some stage during the year rather than waiting for the next Budget, it would be greatly welcome. At the moment, many people who have moved to diesel wonder whether they were right. I suspect that providing the opportunity for a low-sulphur diesel would be welcome, and the tax regime should give it some encouragement.

While on that subject, I hope that some vehicles which are used almost exclusively in towns and cities—taxis and metropolitan buses—should also be given great encouragement to use a low-pollution fuel. I suspect that it would be possible for such vehicles to move on to the use of liquified petroleum gas or compressed natural gas, which would produce far fewer pollutants than diesel. I do not know the difference between low-sulphur diesel and those cleaner fuels, but such a move would be sensible. Vehicles which are working virtually all day in built-up areas must be contributing a fair amount to pollution.

I congratulate the Chancellor on not giving supernatural adjustments to the married person's tax allowance. Back in the days when Lord Healey was Chancellor, he claimed that, instead of raising child benefit, he would raise the married man's tax allowance, on the grounds that it would help people with children. Half the couples receiving the married man's allowance have two earners, so there is no need to have a super-allowance, and half the people getting the married person's allowance do not have dependent children at the time, so, in those cases, children would not be helped at all.

Such help is very badly targeted. In time, I suspect that the best thing would be to be able to transfer the personal allowance from a non-worker of a married couple to the earner, as a way of applying some adjustment in a one-earner household.

That brings me to child benefit, and I urge the Government again to make two changes to it. I re-emphasise that my right hon. Friend the Member for Wokingham (Mr. Redwood) is right in emphasising the remarks made by Lady Thatcher, that it is correct to have an allowance for children. When one goes from having two incomes and two mouths to feed to having—normally—one income and three mouths to feed, taxable capacity goes down, needs go up and an allowance is worth while and justified.

The second question is whether it should be a tax or a cash allowance. For two reasons, it would be better to provide a cash allowance. The first is that a tax allowance gives greater help to people on higher rates of tax—who justifies that? Secondly, a flat allowance is available whether someone is working or not, and whether they are separated or not. The money is a reliable source of income, and in practice, the only reliable of source of income in a household with children.

The mistakes we made were to say that it was to be set in theory by the Secretary of State for Social Security. In practice, it is not an income support measure, relating to means testing. It should be settled openly by the Chancellor as part of the Budget and in line with other tax allowances. That would avoid the Chief Secretary to the Treasury asking the Secretary of State for Social Security whether he really wanted an increase in child benefit, or whether that increase should be given to those who are really poor.

In any one year, we should always try to give cash to those who are really poor. If we do that for a succession of years, we take away the citizenship of benefit for children. I would call it the child cash allowance, and have it settled by the Chancellor. I hope that, during the next year or two, the Government will do that.

I am glad that the Chancellor did not change the arrangements for mortgage relief. I am a great supporter of the idea that those who want to buy their own homes should be able to do so, regardless of whether they are housing association tenants or other social tenants, and whether or not they are starting for the first time. I am also a great believer in the idea that people who want to move from home ownership to being tenants should be able to do that, too.

Those who argue for house price inflation are, I believe, missing the point. We want to make homes affordable for people, and there is no reason why most of people's disposable income should go towards having a more expensive home. It would be better to put more of their money into a small business, or some other such investment, rather than all their assets and everything else being tied to the value of their home, while they make the highest mortgage payments possible.

I welcome the fact that the changes over the past two or three years have encouraged people to pay off their mortgages when they can. That strikes me as proper. Five or 10 years ago, the system encouraged people to have as large a mortgage as possible, and to keep it going as long as possible, well into retirement. That was perverse, and the present arrangements encourage people to pay off their mortgages as and when they can.

My last argument is about bringing the family life cycle and the family perspective into social and economic policy. The Budget can help with that. Over the past 40 or 45 years, we have often made the mistake of looking at still photographs of society and saying, "Here are the apparently unchanging elderly; here are the people who are out of work; there are the lone parents; there are the people of one ethnic background or another."

Instead, we should look at the things that people have in common—the ups and downs of needs and resources, as we change from being dependent children to being independent, and as we move to family formation, and sometimes to family deformation. We move from being in work to being out of work, from being ill to being healthy; we may become disabled, or we may retire. We may be retired and well, and then retired and looking after elderly parents, which is the lot of many people as they move into retirement.

Those predictable ups and downs affect each of us differently, but the general pattern is obvious. When we look at the children born today, we are looking at the pensioners of 55, 65, or 75 years' time. The arrangements that we make now give them signals about what would be good for them or for society, about what contributions they can make, and about what they can expect both privately and publicly.

We should ask the Government every five years or so to feed a family life cycle analysis into social and economic policy. That would he a way of trying to open up some of the targets that might be useful for people—and I can give one example of it that has nothing to do with the Budget.

When I brought the family perspective and the family life cycle into the treatment of drink-driving, we managed to cut out two thirds of drink-driving, and then two thirds of the deaths, in two years, with no change in law, in sentencing or in enforcement. It was a change of culture—the sort of change in understanding that leads to a change in behaviour, which in turn leads to a change in consequences. The same approach could be used in many other areas that matter.

Finally—I apologise to those who have heard this from me too often before, in private as well as in public—I do not approve of cutting the overseas aid budget. This country has been getting wealthier over the years. Our long-term commitment has been to give 70p in every £100 of our national wealth to countries far worse off than ourselves, yet at present we give about 31p, if that. As we become wealthier, we should give more, not less.

I recognise that, calculated on any proper basis, the cut is only about 5 per cent.—less than that made by the Americans or the Swedes, and, for all I know, by the Germans too. But it is this country for which we are responsible. Were I to take off the same proportion of three-line Whips as the Government have taken off overseas aid, I should be looking forward to taking off one vote in every 20, at my own convenience, as a way of expressing my views on overseas aid.

Whatever arguments may be advanced by some people who claim to be more right-wing than I—although I think that in fact I am more right-wing than they on most subjects, such as mortgage interest relief and the married man's tax allowance—I ask my right hon. and hon. Friends on the Treasury Bench to put the overseas aid budget back on some kind of path, however long-term, that leads towards meeting the Government's commitments. I shall go on saying that as long as I remain in the House.

8.33 pm

Mr. Malcolm Chisholm (Edinburgh, Leith)

The Budget has already been called the "7p up, 1p down" Budget, and we shall continue to remind the people of this country that, after it, the typical family will still pay £650 more in tax than at the time of the general election.

We shall also point out that the fundamental reason for those statistics is the weakness of the economy, and the continuing high levels of unemployment. The faces on the Government Back Benches at the end of the Chancellor's speech showed that Conservative Members were not deceived about those basic facts, in spite of the Chancellor's bluster at the beginning of his speech, when he spoke of "our strong economic fundamentals", as illustrated by "consumer spending on a firm upward trend" and "our current account surplus with the tiger economies".

In his selective presentation of facts, the Chancellor omitted to say that our current account deficit was a record £1.2 billion with the non-European Union economies last month, and that our consumer spending in the most recent quarter grew by all of 0.1 per cent. That was because of continuing job insecurity, economic inequality and unemployment.

But the Chancellor could not conceal some more fundamental figures. Indeed, the public sector borrowing requirement of £29 billion is at the heart of the Budget—up £8 billion from his prediction last year. He said that the difference stemmed from lower inflation and lower growth, but inflation was more or less what he predicted, so he really meant that the reason was lower growth.

The right hon. and learned Gentleman's prediction of last year that growth would be 3.25 per cent. this year has today been reduced to 2.75 per cent. Unfortunately, some people say that even that may be too optimistic. For example, in the previous quarter, growth was only 2.1 per cent. With the build-up of stocks, there are also worrying signs that destocking may mean a cut in output in the next quarter and thereafter.

Today, Goldman Sachs even predicted a growth rate next year of 1.6 per cent. We must hope that it is wrong, but the growth figures are certainly gloomy, and in a spiralling decline. The result of those figures is the continuing high level of unemployment, illustrated by the staggering fact that one in five non-pensioner households has no adult in work, compared with one in 12 in 1979. The underlying cause of that, and of the low growth, is the failure of investment to take off in the economy—the continuing failure of investment that we have seen for many years under the Conservative Government.

It is significant that the Chancellor did not give the investment figures in any detail today. He did not say that, over the most recent quarter, investment had increased by only 0.6 per cent., and he did not point out that business investment has increased by only 4 per cent. since the trough of the recession—less than the increase after all previous recessions this century for a comparable period.

The only figure the Chancellor gave was the better figure for manufacturing investment, on which he placed great emphasis. The only investment figure that he gave had increased by 12 per cent. However, last year's levels were absolutely flat, so the increase was from a very low base. Even that increase will probably result only in the replacement of worn-out machinery, not in creating new capacity in the economy.

The fundamental problem in the economy is lack of capacity; that is what leads to high unemployment and low growth. That is the problem, and that is the question that the Budget should have addressed. Yet there were no measures to help investment. In fact, there were several measures with a negative effect on investment, especially in connection with the training budget.

The Chancellor would have been far wiser to examine the Labour party's proposals to put investment at the heart of the Budget process—for example, by increasing capital allowances in the first year for new plant and machinery, and for new capacity in general. Our proposals for regional development agencies would bring more investment into small businesses, as would our proposals to re-examine the idea of tapering capital gains tax, so that long-term investment would be encouraged.

In fact, the Government should have dealt with the whole area of corporate taxation. Our investment has declined by almost 4 per cent. since the Government came to power, and dividend payments have increased correspondingly, from 1.9 per cent. of GDP in 1979 to 5.4 per cent. today. As I have said before, the Government were considering that problem until Lord Hanson told a previous Financial Secretary to the Treasury, now the Secretary of State for Health, that he was a socialist. Then the whole matter was forgotten. The fundamental problems in investment have been totally ignored in the Budget today, but the Labour party puts them at the heart of its economic policy.

Unemployment would be helped by more investment, but other specific measures should have been taken. Once again, the Labour party put forward a specific proposal to fund the abolition of long-term youth unemployment through a windfall tax on the utilities. This proposal was dismissed today by the Chancellor, who showed poor reasoning in doing so.

One of the points that the right hon. and learned Gentleman made was that such a tax would result in increased prices, but there is a regulatory regime for the utilities which can fix prices. There is no reason why a windfall tax should lead to increased prices in gas or electricity. A previous Conservative Chancellor, Lord Howe, imposed a windfall tax on the banks, so there is no reason—even in terms of the Conservative party's history—why that should not be done.

Labour sees the evil of unemployment—I mention again the staggering fact that one in five non-pensioner households has no adult in work—and that is why Labour has prioritised an attack on unemployment with the first tax gains through the windfall tax. We will carry forward the proposal, so that no young person is without a job, a training opportunity or the right to full-time study after being unemployed for six months. I would have to emphasise that there are four options, and that all four will be made available to all young people.

The Government should have looked at many other measures proposed by the Labour party, from whom all the creative thinking on the economy is coming. Another aspect of unemployment is the question of how much people earn when they get into work. The minimum wage is one of our central policies, but we also propose in the long run to have a starting rate of tax of 10p rather than 20p. Anybody earning under £7,000 a year will not be helped in any way by the widening of the 20p band. But if that widening of the 20p band was replaced—for the same amount of money—by a 10p band, it would give a great incentive for many people to go into work at that end of the income scale.

Let us remember that people at the bottom end of the income scale are being taxed most heavily by the Government. The bottom 20 per cent. of people are now paying 39 per cent. of their income in tax, while the top 20 per cent. are paying only 35 per cent. I would have liked to see more measures in the Budget to help people at the bottom end of the income scale.

One measure I welcomed was the extension of the child care disregard. There is a slight improvement there, but it does not address the fundamental problems that the child care disregard has thrown up. I asked a question which referred to Scotland, and was told that only 2,000 families had benefited in the first year of the scheme. The problem is that many people cannot get the benefit of the disregard if they are on maximum family credit or anywhere near it. That problem has not been addressed by the extension of the disregard from £40 to £60. Some of the poorest people on family credit will still not be able to get the advantage of the disregard.

There are many other problems with the disregard. For example, it only applies to children up to the age of 11—I wonder why that is? It also applies per family rather than per child, and it does not cover the full costs of child care. Nevertheless, I welcome the extension, which is a slight step forward.

Unfortunately, it was outweighed by the fact that the Chancellor could not resist making an attack on single parents in his speech today. I suppose that we should be thankful for small mercies—he did not abolish the lone parent premium or the single parent benefit paid when single parents go into work. Full details will be given tomorrow, but I understand that the Chancellor has frozen those benefits.

But he did so by talking about "closing the gap" between single-parent families and couples, as if single-parent families were somehow advantaged. I could not believe my ears when I heard that. Single parents have a slight additional premium of £5 because of their additional costs. An obvious example of that is fuel bills. The same fuel bills have to be paid, whether by a single-parent household or by a couple.

The Chancellor's rhetoric, that somehow single parents were advantaged, was pandering to the lowest prejudices of certain people, and I was very disappointed by that. I would have liked to see measures to help far more lone parents into work. Some 40 per cent. of lone parents have incomes of less than £100, while the figure is 4 per cent. of families that are couples.

Perhaps the Chancellor should remember that before he makes any more remarks about the so-called "privileged position" of lone parents. If the benefit is being frozen, I certainly hope that Labour will unfreeze it, because the single parent benefit is a work incentive for lone parents. The lone parents premium is also related to in-work benefits.

Another group picked on in the Budget—equally disgracefully—were asylum seekers. The measure had been announced before, but it was repeated by the Chancellor. Some of the most vulnerable people in society will be deprived of benefit in January to provide some meagre savings to the social security budget. That measure will, of course, be vigorously opposed by Labour in the new year.

I agree heartily with the hon. Member for Eltham (Mr. Bottomley), who pointed out that there was to be a cut in the overseas aid budget. I know from my post that that cut is objected to by a large number of my constituents, and the Government are underestimating people if they think they can get away with such a cut without increasing their unpopularity.

The priorities of the Conservative party have been shown most clearly in the proposals on inheritance tax, and the repeated intention to do away with capital gains tax in time. The Government are giving money to some of the richest people in society by raising the threshold for inheritance tax. Only 16,000 families at present pay inheritance tax with the threshold at £154,000, and that threshold is now being increased to £200,000.

Millions of pounds are to be given away to some of the richest people in society, while VAT on fuel—which affects the poorest members of our society—is left at 8 per cent. What kind of Government put more emphasis on giving extra money to people who inherit £200,000 than to pensioners and other people on low incomes who need reductions in VAT?

The Government should bear in mind the whole question of home heating, particularly at this time of year. I would have liked to hear something about the home energy efficiency scheme, which I hope is being continued. In his Budget speech last year, the Chancellor said that funding for the scheme would be increased by £10 million a year, and I hope that that is the case. The funding should be increased by far more, and the all-party warm homes group—of which I am a member—proposed that the present budget be doubled. That would help not only people living in cold homes, but the economy as well.

There are a whole series of measures in terms of modernising and improving houses which could help people in need and the economy. But I am afraid that housing in general is another area that will be badly affected this year. I do not know the figure for Scotland, because it is not out yet, but I anticipate that there will be cuts in funding for housing in Scotland again, as there have been in the past few years.

I welcomed some of the measures in the Budget. As the Leader of the Opposition pointed out—contrary to what some Conservative Members may say—Labour welcomes the changes which apply to elderly people who go into nursing homes. As a Member from Scotland, I also welcome the cut in the excise duty on whisky. The duty should never have been put up last year, and the Chancellor did so only in a fit of pique, because the Opposition had defeated the Government on VAT on fuel. In doing so, we brought about the only tax reduction in this Parliament until today.

Mr. Peter Bottomley

I do not wish to anticipate the hon. Member's speech, but is it not perverse that the increase in the duty on spirits led to an income for the Treasury that was £53 million lower than it excepted? The Government were not just defeated on the rate of VAT on fuel, but also by the increase in duty—and consequent reduction in Treasury income—on whisky and other spirits.

Mr. Chisholm

I have to agree with the hon. Gentleman. I also agree, unusually, with Adam Smith on that point. He said that one often reaches a point at which revenues go down. If taxes are too high, they encourage smuggling, people buy less and we end up with less revenue. I think that revenues from spirits were £62 million lower in the first five months of this year. Perhaps that was the main fact that influenced the Chancellor.

I do not mind what influenced him. He certainly moved duty in the right direction. I should have liked to see more done in terms of alcoholic content. Whisky is taxed at twice the rate of wine. The excise duty on whisky should continue to be reduced. I should like to see it reduced by, say, 4 per cent. a year until it was equal with duty on wine. However, so far as it goes, I welcome the reduction.

The whisky industry is a massive industry in the Scottish economy. It is the biggest net exporter, and a massive employer. Some 15,000 to 20,000 people are employed directly by the industry, but there are another 40,000 related jobs. The materials for the whisky industry are from Scotland or the United Kingdom in general rather than imported. It is an important industry. I am glad to be able to welcome something, even though I would have liked the Chancellor to go further.

Many of the other tax changes give with one hand and take away with the other. A good example of that is the emphasis on the private finance initiative, which in many ways we support. We should like to make it work better. Howeber, the Government are using it as a cover for reductions in vital capital expenditure. The Chancellor openly admitted that the Government were reducing capital expenditure programmes.

For example, the health capital programme for England will be reduced by 17 per cent. They are trying to fill the gap with the PFI. It is by no means certain that the gap will be filled, because the Government's promises so far about the PFI have not come to a great deal.

The Financial Secretary to the Treasury (Mr. Michael Jack)

Does the hon. Gentleman believe that the announcement today of a £35 million project for a new hospital for the South Buckinghamshire and Amersham health authority is illusory, or a real illustration of just how well the PFI can work?

Mr. Chisholm

Obviously, some money has come from the private finance initiative. It is not illusory. I am aware of the PFI in health. In Edinburgh, a project for a hospital costing £100 million is out to tender. We also have an extension to the Western General hospital for £60 million. I have serious concerns about the PFI in health. The Health Secretary said last week that it would not affect clinical services, yet in Stonehaven in Scotland, a whole hospital, including clinical services and everything else, is being put out to the private sector. In general, I support the PFI, but I do not support its use in the health service, except under strict conditions.

Dr. Lynne Jones (Birmingham, Selly Oak)

Earlier today, I had a meeting with the chair and chief executive of one of our local hospital trusts. They expressed great relief that their capital investment was more or less through the pipeline, and they would not be caught up by the bureaucratic mess that is the private finance initiative. We have to consider the long-term cost. Private business which puts up the capital will expect a return on its investment. That will create greater debt servicing costs than straightforward public sector borrowing.

Mr. Chisholm

I thank my hon. Friend for that point. The on-going costs are fundamental to the PFI in the health service. Over time, it will be more expensive to pay for the lease of a building, and that will have effects on patient care because it will affect the revenue budgets. I have serious anxieties about the PFI in the health service. The Chancellor talked about delays in traditional capital expenditure programmes, yet the long-drawn-out tender process of the PFI creates the most enormous delays. There are many problems connected with it.

Another example of giving with one hand and taking away with the other is in local government expenditure. It is widely believed that the council tax will rise way beyond the rate of inflation to cover some of the cuts that have been made today. Promises were made about two specific areas of expenditure that affect local authorities—the police and the education service.

We do not yet have the Scottish details. The situation in Scotland is different from that in England. In Scotland, it will be difficult for local authorities to put more money into schools or policing if their general allocations from central Government are cut. Certainly, in Scotland, local authorities receive a general block of money for such services, and it is up to the council to do the best it can.

I feel that the promises will turn out to be deceptive in Scotland, and that may well be the case in England, too. I am told that a promise of 1,000 extra police in England was made three years ago, and we now have 1,000 fewer police than in 1992. We shall wait and see, with some scepticism.

There were slight tax reductions in the Budget today which will be welcome to people, but they do not compensate for the tax rises that they have put up with during the past three years. Although there are some slight improvements in the tax situation, there are no improvements in the general economic situation. That is our fundamental concern as we look forward.

The economic statistics all look very bad, in spite of what the Chancellor said at the start of his speech. I hope that some of the more dire predictions do not turn out to be true, but I fear that the economy will not begin to recover until we have a new Government. That cannot come too soon.

8.56 pm

Ms Diane Abbott (Hackney, North and Stoke Newington)

We are approaching the Christmas pantomime season. I hope to take my son James to see Cinderella at Hackney Empire. As the Chancellor reached the climax of his speech and his announcement of 1p off income tax, we felt like shouting, "Look behind you", as if we were a pantomime audience. His colleagues massed on the Benches behind him looked gutted. A desperate Tory party had been looking to the Chancellor to bribe the electorate with ludicrous cuts in the basic rate into voting Tory at the next general election. We could see from their faces that they did not believe that 1p off the basic rate was enough.

Nothing would be enough to drive the British people to vote for this discredited Administration one more time. People have only to look around them to see what has happened to manufacturing industry, to see the rise in unemployment, to see job insecurity, to see hospital closures and to see what has happened in education. Nothing will be enough. Yes, Tory Members looked gutted.

I intend to draw attention to some of the more cruel and inhumane aspects of the Budget. First, it is astonishing to hear the Chancellor and Tory politicians talk of cutting housing benefit for the under-25s, as though people of that age leave home on a whim, or as a casual act.

Hundreds of thousands of young people leave home, often because they face terrible overcrowding. In my constituency, it is not unusual for families of five, six or seven to be crowded into two-bedroom council flats. Grown boys and girls in their 20s might share a bedroom. Many young people under 25 are forced to leave because of severe overcrowding in the family home, particularly in inner cities.

It is well known to those who deal with the single homeless that many young people leave because they are being physically or sexually assaulted, the family has split up or there are tensions and stress. It is irresponsible for the Chancellor to fashion his policy on housing benefit as though the under-25s are leaving their family homes on a whim and only slight tinkering with financial incentives is necessary to change the pattern.

As a direct consequence of cutting housing benefit for the under-25s, many more people in that age group will find their way on to the streets and into a floating life in hostels. Those who read the accounts of the Rosemary West trial will realise how easy it was for young, homeless, hopeless people to be drawn into the life there and to disappear. No one knew where they had gone or cared what had happened to them. This cut in housing benefit for the under-25s can only feed that stratum of society. Young people with no jobs, hopes or strong family connections will be left to drift without the means to build a life for themselves. It is a particularly cruel and unfair cut in social security.

On the cuts for lone parents, the Government say that the right approach to lone parents is to give neither preferential nor adverse treatment. That is all well and good, but the measures in the Budget amount to adverse treatment. Of course it is more expensive for a single parent to bring up a child than it is for two people. There are all sorts of extra costs, be they fuel or child care.

My hon. Friends have welcomed the increase in the child care allowance, but the allowance is taken up by only 23,000 families and it is not available in respect of children over 11. What on earth is a mother to do with children of 12, 13, 14 or 15? Leave them at home without child care, I suppose, and then get done by The Sun for leaving them "home alone". The child care allowance is a little step forward, but whittling away one-parent benefits and the lone parent premium are acts of pure political vindictiveness and spite.

The Chancellor announced with pride the cut in allowances for refugees and asylum seekers. What that means is that, come 8 January, literally thousands of people in London—families with children—will be without means of support. I had to step out of this debate for a short time to take part in a meeting in which refugee organisations were planning to set up soup kitchens and other means of supplying the basic needs of people who will be without means of support on 8 January—all to enable the Government to amass money for tax cuts.

We heard much about the private finance initiative in the run-up to the Budget and today. The P in PFI stands in my view for pure wishful thinking. How can the Chancellor talk of an illustrative list of 1,000 projects worth more than £25 billion in his Budget speech? What is such a list if not pure wishful thinking?

It is a fantasy to imagine that the private finance initiative is some magic way to provide, at no cost, more money for capital programmes. The initiative is perhaps appropriate for certain types of public investment in which there is a natural revenue stream, such as transport. As a colleague said, however, private finance means that the private sector will want some sort of revenue stream in return. I cannot see how, if the private sector has to borrow the money more expensively and is looking for a revenue stream in time, the initiative can turn out to be cheaper than public sector funding.

The Financial Secretary to the Treasury, the hon. Member for Fylde (Mr. Jack), seems to be nodding. He is very attached to the private finance initiative. We will wait for the big Jack launch tomorrow, but, like all the Government's private finance initiatives, it will consist of the Government's announcing the same scheme—as they do year after year. It will not prove as simple as the Chancellor imagines to push many of them through the pipeline. The initiative is not appropriate to large areas of public expenditure and will not produce concrete schemes.

On that elusive factor that the Chancellor's Budget was supposed to generate—the feel-good factor—I note that the Financial Secretary to the Treasury has a constituency in the north of England. He might not be aware that what has happened to the housing market is the biggest single element underpinning the lack of such a factor in London and the south-east.

It is interesting that, in successive Red Books, the Government have tried—whistling in the dark—to claim that an upturn in the housing market is just around the corner. In last year's Red Book, we were told: On balance the housing market indicators point to renewed recovery. In this year's Red Book, we learn: House prices are 2 per cent. lower … while turnover is over 13 per cent. lower. When the Government predict the same modest housing market recovery this year, we know what weight to give it.

The Government can take 1p off the basic rate of income tax—or 2p or 3p—but for home owners in London and the south-east, many thousands of whom have massive negative equity and many more thousands of whom are in houses that they cannot sell because the housing market is so flat, there will be no return to any feel-good factor until the housing market begins to turn. That will not happen this side of a general election.

I began by talking about Christmas pantomimes. In a sense, this Budget was a pantomime. It had little to do with the underlying strength of the economy, with the country's real needs, with bridging the enormous gap between rich and poor which has built up after 15 years of this Government or with investment. The pantomime had everything to do with this discredited Administration's last desperate hope of winning the general election. We could tell from Conservative Members' faces tonight that they believe that the Chancellor has blown it. I hope for the country's sake that their estimation of their Chancellor's Budget was right.

9.5 pm

Dr. Lynne Jones (Birmingham, Selly Oak)

I agreed with much of what the hon. Member for Eltham (Mr. Bottomley) said. During his speech, I wondered whether he was planning to join my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) on our Opposition Benches.

I would single out the point that the hon. Member for Eltham made about overseas aid. Like most hon. Members, I have had much lobbying from constituents who are concerned at our failure to honour the commitment to spend 0.7 per cent. of GDP, the United Nations target, on overseas aid. This year it is 0.31 per cent. of GDP and it is set to fall. It will be no relief that the leaked figure of a 12 per cent. cut turns out to be more like 5 or 6 per cent.; that is still far too high. We should increase the overseas aid budget.

I also listened to the speech of the hon. Member for Macclesfield (Mr. Winterton) and, like him, I congratulate the Chancellor of the Exchequer on resisting the calls earlier this year from the Bank of England for an increase in interest rates. I also share the hon. Gentleman's feelings about the scale of the tax cuts that have been announced in the Budget. Many Conservative Members must have been severely disappointed by the low rate of giveaways in the Budget but, in one sense, perhaps the Chancellor was more responsible than most of his Back Benchers wanted to him to be. To that extent, I congratulate him.

Another way of looking at the Budget is to say that the economy is in a far worse state than Conservative Members are prepared to acknowledge and that the Chancellor could not risk giving away more than he has because of the concern that that would have caused in the markets. The priority of most business people is a cut in interest rates, not taxation. That is because they do not share the Chancellor's view, which I think he mentioned five or six times in his speech, that Britain was the enterprise centre of Europe or that we have a modern dynamic economy.

The view of business and finance is more along the lines of the west midlands business survey produced by Price Waterhouse, a Birmingham-based company. The survey showed the lowest level of business confidence since the winter of 1990, and said: Continuation of this for a further six months could constitute the prelude to a recession. That is hardly in line with the Chancellor's view that all the factors are in place for a continuing recovery.

Although the Conservatives had the bonanza of North sea oil and privatisation receipts, our economy does not have the fundamentals in place.

Mr. Jack

If life is so bad, why did the Chancellor say in today's statement that investment in manufacturing industry had risen year on year by 12 per cent.?

Dr. Jones

It is because we must consider the base from which it is rising. In the fourth quarter of 1994, business investment was at its lowest since 1955. Although there has been an increase since the recession, it is still not up to the business investment that we had in 1990. We cannot be proud of that record.

Mr. George Stevenson (Stoke-on-Trent, South)

Does my hon. Friend agree that one of the fundamentals of the Chancellor's speech was his blatant attempt to convince the country that the Government had been in power for only the past three years and not for 16 years, during which time they have created most of the problems which the Chancellor now claims credit for trying to put right?

Dr. Jones

My hon. Friend is right. The Chancellor claims credit for the recovery after the Government steered us into a recession, first by joining the exchange rate mechanism at a sterling rate that could not be sustained. When we were finally bounced out of that, he claimed that the Government were responsible for the recovery. The policies responsible for the recovery were the exact opposite of those that the previous Chancellor of the Exchequer claimed were important to maintain low inflation and our competitive edge.

We have had export-led growth but, because of the failure to invest in our economy—business investment and public sector investment in research and development—we do not have the fundamentals in place, which is why the recovery is now faltering. That is why the Chancellor maintains that he has succeeded in slowing down the growth of the economy to a more sustainable rate. He means a sustainable rate of growth of some 2.5 to 2.75 per cent., which is lower than the growth that we have experienced in the overall post-war period. It is certainly not the rate of growth that we need to tackle unemployment and put confidence back into the economy.

The slump in the housing market and the failure to invest are caused by lack of confidence. People are worried about their jobs. Those in work are worried that they may lose their jobs, and the Budget has done little to deal with unemployment. That is why we must look at the whole tenor of the Government's policies over the past 15 or 16 years. The Chancellor said that a low-tax regime was important for a successful economy, but nothing could be further from the truth. Business taxation has been low under this Government, but that low taxation has not been used to invest in our economy. In other countries, where business taxation is higher, those businesses have for some reason maintained much higher investment than exists in this country.

I urge the Government to look at the reports produced by both the Trade and Industry Select Committee and the Science and Technology Select Committee, in which they have suggested measures to encourage investment and the long-term view to be taken by our financial institutions. I am disappointed that the Government did not look at ways of managing business taxation to give incentives for long-term investment. That does not necessarily mean a cut in business taxation; one could argue that increasing business taxation in line with that in more successful economies such as Germany and Japan would bring in some revenue. That would also provide scope for tax incentives for the retention of earnings and long-term investment. Many hon. Members on both sides of the House believe that there is a need for capital allowances to get our business community to invest.

Even if we succeed in upping our investment rate, it is likely that that would not create more jobs. That policy would, however, succeed in stemming the haemorrhage of jobs from manufacturing and would ensure that the manufacturing sector grows and output increases. That is a priority for the wealth-creating base of this country. That policy would, however, merely ensure that unemployment did not increase in the manufacturing and the wealth-creating sectors. It would do little to create more jobs.

We should look for job-creating opportunities through investment in infrastructure projects, for which the business community is desperate. There is a great need for investment in transportation and construction, particularly housing. That brings me on to the private finance initiative.

I believe that the PFI is nonsense. It is a device designed to massage the public sector borrowing requirement to make it look as though Government borrowing is coming down. If we used private finance, all the signs are that, in the long term, it would be more expensive to the taxpayer. One need only consider what has happened in the social housing sector to appreciate that.

For some time, housing associations have been able to borrow on the private markets to top up the Government grant, and thus provide social housing. Those associations have to pay a higher rate of interest to provide those homes than would be charged to a local authority were it permitted to do the same. It is pure dogma that prevents local authorities from borrowing on their capital assets.

I know that, in my city of Birmingham, the private sector would be only too willing to lend to the city council to finance projects that reaped returns in income from rents and the benefit of getting people back to work. Birmingham, as in many other parts of the country, has thousands of empty houses. Conservative Members have perpetuated the myth of large numbers of empty council houses. In Birmingham, there are about 1,800 empty council homes—1.8 per cent. of the stock. That is about the minimum number when stock is subject to normal turnover, and most of those properties are let within days or weeks. There are, however, 16,000 empty homes in the private sector in Birmingham. That is due to the slump in the housing market. The Budget contains nothing to shift those homes in the market so that people can live in them.

There is insufficient demand in the private market. Councils such as Birmingham should be given permission to repurchase a proportion of those homes and make them available for letting. That would provide homes for those who need them and create work in the construction sector, and get people off the dole. That policy would take some excess homes out of the market and help to create more demand in it.

No such policies have been proposed in the Budget. Not even minimal help has been offered, for example, by allowing local authorities to spend their accumulated housing capital receipts. I admit that Birmingham city council does not have very much in the way of such receipts, but it certainly has the ability to raise capital on the market, and it should be allowed to do so.

Problems would also arise if private finance were used to fund transport infrastructure projects. If private finance were used to invest in the railways, in the end the cost of raising that private capital would be a great deal more than if it had been raised by the public sector. Who would have to pay? Either the taxpayer, in the form of subsidy, or the rail passenger, in increased fares.

It is time that the Government looked at the way in which they define our public sector borrowing requirement. It is right that we should reduce our borrowing; we should not borrow for consumption or to pay for benefits. But borrowing to pay for investment in our future is common sense—any business would agree. If we are to reduce unemployment, we need public sector investment in infrastructure.

We also need investment in another public sector, and I shall spend a few minutes talking about next year's local authority budgets. We have heard the much-lauded announcement of an increase in spending on education which, on the surface, is to be welcomed. But, overall, the resources that go to local authorities are to be increased by about 0.5 per cent., which is insufficient to deal with pay and price increases and the other unavoidable consequences of factors such as pay increments.

In Birmingham, it is estimated that, with those sort of spending targets, we would face a cut of between £60 million and £68 million in our budgets next year, on top of the £45 million-worth of cuts last year. Nearly 40 per cent. of the budget involves education. Birmingham city council already spends £21 million more than the Government standard spending assessment. That figure is taken care of in the increase in spending on education. But what is given in one hand is taken away with the other.

It will be impossible for a council such as Birmingham to make cuts of £60 million and maintain its commitment to the £21 million that it is likely to spend over and above the SSA—we would like to spend even more. We shall be spending at the Government SSA level, but that will mean big cuts. That is a kick in the teeth to the council in Birmingham, which has given top priority to education at the expense of other services, including social services which have faced big cuts. Those cuts will result in job losses.

The Government always say that it is important that people should keep more of their own money and that they want to give taxpayers their money back. That may be true of spending that comes out of taxation, particularly unnecessary spending due to high levels of unemployment. If the Government had invested the wealth of North sea oil and had encouraged business investment in wealth creation, we would not have the current high levels of unemployment for which the taxpayer has to pay: the taxpayer pays for the Government's economic failure.

There are other spheres of expenditure where the taxpayer receives poor value for money. I can single out expenditure on the military, which is considerably above the European average. It would have been far better if the Government had, over time, switched money from the defence budget—which is not really a defence budget but a military budget—as happens in other parts of Europe. No one in the House would wish unnecessarily to reduce our military spending so that we do not have a reasonable defence capability. We still have 26,000 troops in Germany. There is scope for moving expenditure and investing in civil employment. There is plenty of scope for us to reduce the defence research and development budget and invest the money in civil R and D—we should do that. We could transfer funding to the DTI and science budget.

Although I would change some aspects of Government spending, however, the taxpayer generally receives excellent value for money. Taxation is a good buy, and by reducing Government spending in some areas we are not doing our best by our citizens. We spend about 6 per cent. of gross national product on the health service, while America, whose citizens rely on private insurance, spends double that amount.

In the case of services in which over-provision leads to inefficiency, collective provision through the taxpayer is the most efficient method. Even after the Government's introduction of the internal market—an unnecessary bureaucracy—our national health service is still effective. The same goes for many services that are provided through local authorities, such as social services and education. Cutting the funds with which local authorities provide those services does the taxpayer no favours: rather than having more money in their pockets, people will have to fork out far more than they have contributed in the past.

As a result of last month's decision to remove the safety net for unemployed people with mortgages, the Government expect to save some £200 million in a full year. Those affected, however, are no longer confident that they will be helped with their mortgage interest payments if they lose their jobs, and are having to take out private insurance. Notwithstanding one building society's initiative, the majority of societies cannot provide mortgage protection policies free of charge, and premiums will be £4 or £5 a week for the average mortgage. That cut in public expenditure means that citizens will be worse off.

It is said that we cannot afford to maintain the welfare state as we have in the past. The example of long-term care has been cited. The Chancellor announced some changes in the way in which people will pay for such care. Many people must now sell their homes to pay for accommodation of that kind—not just residential care but nursing care. In the past, the national health service made long-term care available, but apparently we cannot afford that now.

What use is a reduction in inheritance tax to people of modest means whose only capital asset is their homes? Now they are having to sell those homes. It is good that they can now keep a little more money than they could before, but why should they have to pay for nursing care? Why should they have to give up their modest savings?

The Government are setting up future business for the private insurance companies. The Chancellor's partnership plan is entirely in line with proposals advanced by a company called PPP, or Private Patients Plan, as can be seen in a parliamentary briefing paper entitled "Long-term Care and the Role of Private Provision". It is making the sort of proposals that the Chancellor of the Exchequer is suggesting today—a partnership scheme where the Government will top up private sector insurance.

What will people have to pay for such insurance? The document says: Savings of £60,000 will be needed to cover the cost of care for a five year period as opposed to a single insurance premium of £9,000 or £70 per month". The failure to maintain the fabric of our welfare state is resulting in ordinary individuals of modest means having to take out private insurance policies, and paying out about £70 a month. Tax cuts of the magnitude that we have had today will not make up for the sort of sums that people are having to pay for these private insurance premiums.

All the time, whenever there is an undermining of public sector provision and its replacement by private insurance, people get a much worse deal than through the state provision. For example, people moving out of the state earnings-related pension scheme are discovering that they are far worse off as a result of taking out private insurance plans.

Private insurance companies are rubbing their hands with glee because, as a result of the erosion of the welfare state, people are having to take out private insurance policies to cater for all sorts of eventualities that previously would have been paid for from the welfare state. When, therefore, the Government talk about getting off the backs of taxpayers, they should tell people that they may get tax cuts—although under this Government, because of the Government's economic failures, people have had only tax increases—but that they will have to pay several times over for those cuts in making private provision. They will pay more and receive less, and that is just typical of this Government and of the 16 years of misrule that they have presided over. The Budget will not do anything to recommend the Government to the electorate. The sooner we have a general election, the better.

Debate adjourned.—[Mr. Burns.]

Debate to be resumed tomorrow.